2026 Real Estate – Hospitality mid-year state of the market

The hospitality sector enters the second half of 2026 defined not by uniform recovery, but by divergence. Demand remains strong but is no longer evenly distributed. Performance is now concentrated at the top end of the market, while limited-service properties face persistent headwinds. Walker & Dunlop’s 2026 Outlook characterizes this as a “K-shaped” hospitality market: luxury and upper-upscale properties continue to command pricing power, with Marriott reporting U.S. and Canada luxury RevPAR growing 7.4% year over year for Q1 2026, compared to 2.7% for select-service properties.¹ Meanwhile, limited-service occupancy has declined in each of the past three years.

Summary

Capital markets tell a similar story. Debt is increasingly available for high-quality stabilized assets, with transaction volume reaching approximately $29B on a rolling four-quarter basis. Equity remains disciplined, with institutional investors underwriting more conservatively and targeting assets with clear differentiation and proven cash flow.² Hotel transaction volume climbed 17.5% year-over-year in 2025, driven largely by private investors.³ New development, however, is constrained not by a lack of capital but by rising costs. Rooms under construction fell to their lowest level since 2017 as tariff-driven materials inflation and a tighter construction labor market eroded project feasibility.⁴

Labor costs remain the defining operational challenge at midyear. Wage rates are expected to rise about 5% in 2026 following more than 6% growth in 2025, with wages and benefits comprising roughly half of total hotel operating expenses.⁵ A structural tightening of the labor pool, driven in part by reduced immigration in a sector where foreign-born workers represent approximately one-third of the workforce, is sustaining upward wage pressure.⁶ AI-enabled scheduling tools, lean operating models, and automated guest systems are gaining traction as operators seek to protect margins while top-line growth moderates.

The FIFA World Cup, hosted across multiple U.S. cities through summer 2026, is expected to provide a meaningful demand catalyst for host markets including Dallas-Fort Worth, Houston, Los Angeles, and Philadelphia. Adaptive reuse, particularly office-to-hotel conversions, continues to reshape supply dynamics in major metropolitan areas.

As demand diverges and operating pressures evolve, the insurance environment presents a similarly mixed picture. Property conditions have improved significantly from the 2023 hard market peak, with well-managed, non-catastrophe-exposed hotel assets achieving meaningful rate reductions. Casualty lines, however, remain challenging as nuclear verdicts, third-party litigation funding (TPLF), and persistent social inflation continue driving liability costs higher. Strategic insurance planning has never been more critical to protecting margins and sustaining asset value in a segmented market.

Navigating these diverging market conditions requires insurance strategies that align with both operational realities and long-term investment objectives. The Baldwin Group partners with hotel owners, developers, franchisors, and management companies to strengthen risk controls, optimize coverage structures, and position insurance programs for an evolving hospitality market.

Property market

The hospitality property insurance market has continued its meaningful softening through the first half of 2026. After reaching a generational hard market peak in 2023, the industry’s combined ratio improved from 101.6 in 2023 to 97.1 in 2024 and 95.0 in 2025, with net underwriting income reaching approximately $39B last year.⁷ The resulting improvement in insurer profitability has translated into increased competition, broader capacity, and more favorable terms for many hospitality buyers.

While market conditions continue improving, underwriting discipline remains. Replacement cost assumptions, deferred maintenance, catastrophe exposure, and regional loss activity continue shaping underwriting decisions, reinforcing the importance of proactive asset management and accurate property valuations.

Market conditions

• Rate moderation – Non-CAT-exposed hotel assets with favorable loss history are generally achieving mid-single-digit to low-double-digit rate reductions. Catastrophe-exposed properties with clean records, particularly within larger shared and layered programs, are often realizing even greater pricing improvements.
• Abundant capacity – Shared and layered placements are consistently oversubscribed, and several insurers have re-entered classes they declined in recent years. Competition for quality hospitality risks is fierce.
• Terms and conditions – Coverage terms continue improving, with two-year rate guarantees and blanket limits returning. Wind and hail deductibles are also shifting from percentage-based to dollar deductibles, creating strategic opportunities to lock in durable program structures. Trading lower rate reductions for improved deductibles and terms helps lock in flexibility for future hard markets.

Underwriting priorities

• Insurance-to-value (ITV) – ITV remains a key underwriting priority as tariff-driven construction inflation and labor shortages widen the gap between sale prices and development costs. Many insurers now require five-year loss histories regardless of ownership during that period. Hotels behind on appraisals or property improvement plan (PIP) updates may still face upward valuation adjustments at renewal.
• Deferred maintenance – Hotels with incomplete property improvement plans, aging electrical, plumbing, or roofing systems, or open code compliance issues continue facing tighter terms and slower softening than the broader market.
• Aging and CAT-exposed assets – Older, coastal, and frame properties continue experiencing slower market improvement than newer, well-maintained assets.

Regional watchpoints

• Northeast losses – Winter storm deep freeze events, pipe bursts, and water damage losses continue limiting further rate reductions in parts of the Northeast even as the broader market softens. Water damage deductibles and impairment reporting standards remain active underwriting levers.
• Catastrophe-prone regions – Coastal and other catastrophe-exposed properties continue experiencing slower market improvement than non-CAT risks, as hurricane, wildfire, severe convective storm (SCS), and flood exposures remain key underwriting considerations.

Hotels that maintain strong maintenance programs, document recent capital improvements, and proactively address CAT and water-related exposures are best positioned to secure competitive property terms in a more favorable mid-2026 market.

General liability

General liability remains one of the most challenging lines for hospitality operators in mid-2026. Nuclear verdicts and TPLF continue driving claims severity across the sector. A recent Swiss Re study found that just 56% of respondents now believe there are too many lawsuits in the U.S., down sharply from 90% in 2016, while 76% believe damages awarded are too low or about right, up from 58% in 2016.⁸ The litigation funding industry, now estimated at $16B, continues providing capital to law firms that pursue litigation in lieu of reasonable settlements, contributing to the frequency and severity of nuclear verdicts.⁹

Recent verdicts illustrate the stakes. An Ohio jury awarded $27M to the estate of a patron beaten to death by two security guards outside a bar and restaurant.¹⁰ Additionally, the first reported jury trial of a Trafficking Victims Protection Reauthorization Act (TVPRA) claim against a hotel proceeded in July 2025, and the jury handed the plaintiff a $40M verdict.¹¹ These outcomes continue reshaping underwriting expectations for hospitality operators, particularly those with nightlife, liquor, or security exposures.

Against this backdrop, insurers continue refining pricing, coverage structures, and underwriting expectations across the hospitality sector.

Market conditions

• Pricing trends – General liability pricing continues trending upward across the hospitality sector. Operators with favorable loss history are generally seeing modest to low-double-digit increases, while those with adverse loss history often face significantly higher pricing.
• Coverage structure – Limits of $10M are increasingly difficult to secure, with coverage spread across multiple $5M layers that require more insurer participants and increase program costs. Some insurers have also issued conditional renewal notices indicating they may not renew current terms or on a guaranteed-cost basis.
• Retentions – Guaranteed-cost programs remain available but are becoming increasingly limited as insurers continue shifting more risk to policyholders through self-insured retentions (SIRs).

Underwriting scrutiny

• High-hazard exposures – Assault and battery (A&B), sexual abuse and molestation (SAM), firearms, human trafficking, and liquor liability remain major severity drivers. Standard insurers are stepping back for operations where liquor revenues comprise a significant portion of total sales. Coverage exclusions for A&B and SAM are increasingly tied to demonstrated security protocols.
• Coverage restrictions – Coverage is increasingly restricted through sublimits or exclusions unless operators can demonstrate robust security protocols.
• Lender and equity partner due diligence – Third-party consultants are being engaged by lenders and equity partners to conduct detailed insurance reviews. Requests for contracts, maintenance logs, security verification documentation, and sample agreements have become standard components of the renewal process.

Claims and litigation drivers

• Social inflation – Changing public attitudes toward lawsuits continue driving larger settlements regardless of defendant size. The trend toward nuclear verdicts is still spreading nationwide even as tort reform advances in select states.
• Nuclear verdict environment – TPLF continues fueling outsized verdicts, as evidenced by recent verdict outcomes. Injury severity, not company size, remains the primary driver of verdict behavior.
• Premises and guest-safety liability – Slip-and-fall severity, rising medical costs, ADA claims, and expanded trafficking litigation continue elevating defense and indemnity costs. Crime scores, site security, and physical security standards now play a decisive role in underwriting.
• Human trafficking litigation – Human trafficking litigation under the TVPRA continues accelerating as plaintiffs increasingly allege owners, operators, and brands knew or should have known trafficking was occurring on their properties, creating significant liability exposure. Beyond the financial impact of litigation, underwriters are evaluating anti-trafficking policies, employee training, reporting procedures, and documentation as indicators of operational risk management.

Hospitality operators that reinforce security protocols, strengthen compliance documentation, and proactively address high-hazard exposures are best positioned to secure favorable outcomes in a marketplace that remains cautious and increasingly selective.

Umbrella and excess liability

The umbrella and excess liability market remains hardened entering the second half of 2026, though some moderation is occurring for operators who restructured their programs ahead of the current environment. Social inflation and nuclear verdict trends continue to drive unfavorable rates and diminished capacity. Operators with nightlife exposure, high guest-interaction operations, or adverse loss history face the most constrained conditions.

• Rates trends – Well-performing hospitality risks continue experiencing low-double-digit rate increases, with little easing evident. Operators with adverse loss history or complex exposures often face significantly higher double-digit increases.
• Restructured programs – Operators who moved to $2M primary limits or $10M umbrella leads are experiencing more favorable outcomes than those maintaining $25M lead structures. Restructuring opens towers to broader market participation and allows for faster pivoting if insurer appetite changes.
• Reduced capacity – Insurers remain hesitant to deploy limit in the first $5M layer, citing persistent severity trends. Increasing primary GL limits from $1M to $2M or $2M to $4M continues to provide relief in some cases. For high-risk exposures, limited insurer appetite continues constraining capacity and driving higher pricing.
• High-limit towers complexity – Insurers are deploying less limit per layer, requiring more insurer participants to build adequate towers. Lowering total limits remains one of the few viable strategies for maintaining a financially manageable program.
• High-risk exposures – Resorts with ancillary recreational exposures, including paddleboarding, horseback riding, and jet skiing, as well as properties with nightlife, contracted security operations, sexual misconduct, or human trafficking exposures continue to face the most constrained market conditions. Excess insurers are avoiding some of these classes altogether.
• RPG retrenchment ongoing – Insureds that relied on risk purchasing groups continue to face greater underwriting scrutiny, reduced capacity, and higher pricing following the retrenchment of major RPGs in late 2024.

Stronger operational controls, clearer documentation, and proactive management of high-risk exposures will be essential to navigating continued excess liability pressure.

Employment practices liability (EPL)

EPL insurers are expressing a desire for higher rates given claims trends and rising litigation costs, but the competitive market environment is currently limiting significant rate movement. Nonetheless, the EPL exposure landscape for hospitality operators continues evolving. Wage pressures remain a defining challenge, compounded by a tightening labor pool, union activity, and the highest voluntary quit rates of any U.S. industry.

• Wage inflation – Wage rates are projected to rise approximately 5% in 2026 after more than 6% growth in 2025, with wages and benefits comprising roughly half of hotel operating expenses.
• Tightening labor pool – Reduced immigration is tightening labor availability and sustaining upward wage pressure in a sector where foreign-born workers represent about one third of the workforce. Accommodation and food services leads all U.S. sectors in voluntary quit rates, creating persistent turnover-related EPL exposure.
• AI-related claims – Enforcement scrutiny around AI-based hiring practices, algorithmic scheduling, and performance management is increasing. Operators adopting AI-enabled tools face a new and evolving category of EPL exposure.
• Pay transparency – High-wage earner pay transparency claims are generating severity well beyond deductible assumptions. Several states enacted pay transparency requirements in 2025, contributing to a new wave of pay equity claims.
• Union activity trends – Labor organizing momentum continued across metropolitan markets in 2025 and into 2026, producing new bargaining agreements, retaliation claims, and disputes that intersect with EPL exposure.
• Biometric and privacy claims – Hotels using biometric time clocks, facial recognition, or access technologies face rising exposure under evolving state privacy laws as plaintiffs challenge consent processes, retention policies, and disclosure practices.
• Social inflation – EPL claims are more vulnerable to social inflation than traditional financial liability lines because subjective allegations often drive larger settlements than policy structures anticipated.

Hospitality operators that maintain consistent HR practices, reinforce supervisory training, and strengthen documentation around hiring, scheduling, discipline, and accommodations are better positioned to mitigate EPL exposure and secure favorable terms in a market that remains highly sensitive to workforce dynamics.

Cyber liability

Cyber risk remains a top-tier exposure for hospitality operators. Hotels continue to rank among the most frequently targeted industries due to the volume of sensitive guest data they manage and the interconnected technologies that support daily operations. While cyber pricing remains relatively stable for well-controlled risks, ransomware, vendor compromise, AI-enabled attacks, and expanding digital ecosystems continue to elevate loss severity and underwriting scrutiny.

As hotels modernize operations through smart building technology, AI-powered guest systems, and automated workflows, cyber resilience has become an increasingly important underwriting differentiator. The following trends continue shaping cyber risk across the hospitality sector.

• AI-enabled social engineering – AI-enabled voice spoofing, payment diversion schemes, and sophisticated phishing attacks targeting front-desk and accounting teams have increased in frequency and sophistication. Multi-factor authentication fatigue and unverified banking instruction changes remain leading loss drivers.
• Digital system breaches – Hospitality remains disproportionately affected by point-of-sale compromises, loyalty program fraud, and credential theft. Fragmented hardware across food and beverage outlets and retail kiosks with inconsistent patching practices continues to drive exposure.
• Vendor dependencies – Dependence on property management systems, point-of-sale systems, access control, key-card vendors, reservation engines, and outsourced IT providers creates concentrated systemic risk. Vendor selection, network segmentation, and business continuity planning are active underwriting focus areas.
• Operational technology (OT) – Internet-connected door locks, elevators, HVAC controls, surveillance systems, AI-powered guest systems, and automated scheduling tools expand the attack surface. Underwriters are paying closer attention to OT segmentation and vendor access management as hotels adopt smart building technology.
• Guest data privacy exposure – Hotels handle large volumes of sensitive PII, including passports, payment cards, loyalty data, and event attendee records. Enforcement activity around state privacy laws is increasing scrutiny of data retention schedules, consent practices, and third-party data-sharing agreements.
• Ransomware and business interruption – Ransomware continues to disrupt reservations, check-in/check-out systems, event services, and key card operations. Insurers are evaluating backup maturity, restoration testing, and offline recovery capabilities when pricing hospitality risk.

Clear governance, disciplined vendor management, and tested response protocols can help hospitality operators reduce exposure and maintain favorable positioning in a cyber market that continues to reward control maturity.

Environmental liability

Driven by aging infrastructure, water intrusion, and heightened environmental scrutiny, environmental liability remains a persistent exposure for hospitality operators. Older, coastal, and deferred-maintenance properties, as well as those undergoing renovation, continue to receive increased underwriting attention as insurers place greater emphasis on property condition, environmental controls, and operational resilience. The following trends continue shaping environmental liability across the hospitality sector.

• Mold and moisture intrusion – Aging plumbing, HVAC systems, and building envelopes remain leading sources of mold incidents. Underwriters are focusing on historical water-damage patterns, humidity controls, preventive maintenance, and documented drying protocols following leaks or floods.
• Water-system management – Hotels with pools, spas, cooling towers, or high-use water systems face elevated Legionella exposure. Insurers increasingly expect documented water-management plans, routine testing, and timely remediation, particularly for older or high-occupancy properties.
• Indoor air quality (IAQ) – Inconsistent ventilation, outdated filtration systems, and deferred HVAC upgrades heighten the risk of IAQ complaints and guest health allegations. Underwriters are reviewing IAQ monitoring, filter replacement schedules, and system inspection records more closely.
• Renovation exposures – Capital improvements, PIPs, and adaptive reuse projects introduce risks tied to asbestos, lead, silica dust, and construction-related moisture intrusion. Hotels undergoing renovation without clear environmental protocols face tighter terms and higher deductibles.
• Waste handling and F&B operations – On-site laundry, commercial kitchens, and cleaning chemical storage create exposure to spills, improper disposal, and air quality issues. Underwriters consider chemical handling procedures, food and beverage safety, staff training, and ventilation adequacy.
• Catastrophe-amplified losses – Properties in hurricane-, flood-, or wildfire-exposed regions face heightened risk of mold, soot, and smoke contamination. Insurers are evaluating post-CAT remediation vendors, mitigation strategies, and documentation standard.

Strengthening environmental governance, validating system performance, and enforcing preventive protocols can help hospitality operators improve underwriting outcomes and reduce the operational impact of environmental incidents.

Turn insight into action

Success in the hospitality sector hinges on balancing guest expectations, operational pressures, financial performance, and shifting insurance conditions. In mid-2026, a bifurcated demand environment, rising labor costs, meaningful property relief, and persistently challenging casualty conditions make insurance strategy a critical lever for protecting margins and sustaining long-term asset value.

The Baldwin Group helps hospitality organizations strengthen defensibility, align coverage with operational exposures, and secure capacity in a dynamic insurance market. With industry-specific expertise and a proactive advisory approach, we help owners, developers, franchisors, and management companies strengthen resilience, protect their people and properties, and position their organizations for long-term success.