Hotel Insurance Costs Are Rising—Here’s Why

SEASON 5: Episode 1 -

Insurance is one of the biggest cost pressures facing hotel owners right now — and most operators still do not fully understand why. In this episode, Bryan Fish sits down with Dan Garzella to break down what is really driving rising hotel insurance premiums, what ownership groups are getting wrong, and how better risk management can create better outcomes.

Dan Garzella, Founder and CEO of The Garzella Group, shares how he went from arriving in Arizona with $500 and no plan to building a major portfolio of insurance-related companies with billions in insured value across the United States.

In this episode, we cover:
•Why commercial property and hotel insurance premiums have surged in recent years
•How inflation, reinsurance, and market conditions impact hospitality insurance costs
•Common mistakes hotel owners make when filing claims or structuring coverage
•Why risk management, loss prevention, and operational discipline matter more than ever
•How the right broker relationship can directly affect your insurance strategy and long-term cost

Dan also explains why hospitality remains a uniquely challenging asset class for insurers, what hotel owners should communicate before renewal, and how to avoid working against yourself when shopping the market.

If you are a hotel owner, operator, developer, or hospitality executive trying to better understand insurance, commercial property risk, underwriting, and renewal strategy, this conversation is packed with practical insight.

#Hospitality
#HotelInsurance
#HotelDevelopment
#CommercialRealEstate
#CheckInWithBryan

Transcript

SPEAKER_00 0:47

Welcome to Check In with Brian. I'm your host, Brian Fish, and let's sit down and have a conversation with Mr. Dan Garzella. This episode of Check In with Brian is brought to you by Reliance Hospitality, hospitality consulting, project management, and business process outsourcing built exclusively for the owner's side of the table. PIPs, renovations, budgets, brand compliance. We manage it all so you don't have to. Learn more at RelianceHospitality.com. Welcome back, everyone, to this week's episode of Check In with Brian. I'm your host, Brian Fish. And one major topic right now across our industry is insurance. It's the big I word that nobody really wants to talk about because it's a big piece of your PL and it's been something that's been creeping up and up and up over the last couple of years. And there's a reason for that. We're gonna learn about that reason today and also talk about some ways that we can try to avoid those costs continuing to rise and hear a little bit about the fact that there is some relief out there. Unfortunately, though, the hotel market is still what they consider distress, which does cause some issues with trying to get those rates down. But there is uh a road ahead and there's options um out there, and there's some best practices that we can all follow to help lower our costs at the end of the day. So um I've got a great guest that we're sitting down with today, Dan Garzella. He's the founder and CEO of the Garzella Group, based here in Scottsdale, Arizona. And um, Dan's got 20 plus years of experience in the insurance market. Um he literally has built his career from literally nothing to a major firm with um over, I think,$30 billion worth of assets in one of the uh the companies currently. So um Dan's a great guy. He's gonna provide a lot of great information, and I'm looking forward to um what he has to share with us. And uh I know that this will be beneficial to all of you out there. So we'll be right back after this with Dan Garzella. Welcome back, everyone, to this week's episode of the Check In with Brian. I'm your host, Brian Fish, and we are joined today by Dan Garzella, founder and CEO of the Garzella Group, based here in Scottsdale, Arizona, or Phoenix, the Phoenix metro area. Um, but Dan, um, welcome. This is your first time on the podcast. Yeah, thanks for having me. Um, you're not very far from here. You're just down the street from the studio. It's great. I'd probably walk here if I was very motivated to do so. And it was much cooler outside. Yeah. No, um, unfortunately, we can't walk here. It's a it's quite a drive. So you had a much shorter commute than we did. But uh, no, we're glad that you were here. Um, we're glad that you got to see Next Space. Yeah, space is awesome. You know, I guess the easy thing if somebody asked me who is Dan Garzella to be like, oh, he's the insurance guy. But what is the Garzella group? The Garzella Group. Well, who is Dan Garzella?

SPEAKER_01 3:54

You know, I'm certainly a motivated entrepreneur that um lives to create opportunities for others. And in creating those opportunities, I, you know, of course, founded and and launched uh the Garzella Group, which has now grown into a group of insurance-related companies. Two major ones probably relevant to this conversation. Uh, one, of course, is uh Avalon Risk Management. Avalon is our own proprietary commercial property insurance program. And we've got about 35 billion in total insured value across the United States. Wow. And then the second company is Arkstone Insurance Advisors. That's our traditional retail insurance brokerage, where we broker insurance through all the big names that you've heard of Travelers, AM Trust, Nationwide, Liberty Mutual, etc. Lloyds of London. Lloyds of London. Well, that's a that's back a few steps. That's more in the program space. But we do a lot in the traditional brokerage space. And then of course, we've got our own uh proprietary program, which is of course Ablon.

SPEAKER_00 5:02

Awesome. So you're you have your hands in a little bit of everything.

SPEAKER_01 5:04

Yeah, yeah. They're all they're all related. And you know, one one uh you know, I I've I've always had a uh problem first approach to business. So, you know, I identify a problem, solve the problem, and then look to monetize the problem. Yeah. And so that has led to seven insurance-related companies right now.

SPEAKER_00 5:21

So is insurance something you were always interested in? Never. So how did like I know like I you know, obviously I did a little bit of prep for today. You know, it seems to me that across the board, people kind of it's kind of like hospitality, people kind of fall into it. Yeah, it doesn't seem like people set out to become an insurance uh broker or a own an agency or do anything in the insurance space. So how did that happen? Yeah, you're exactly right.

SPEAKER_01 5:42

So I had uh from Michigan originally. I had uh from Indiana. So yeah, yeah, Midwest is great. We're good people. That's that's for sure. Yeah. Um, I had a computer science IT background, graduated college, had some friends moved out to Arizona, moved out here with you know$500 to my name, and just figured I'd get a job waiting tables while I was looking for something in my field. I did, I went out two weeks, was able to get a job at a fine dying restaurant. You know, I was super pumped because I was I was set in my mind. And then I went to go in my first day of of work, and I had spent the most of the money I'd saved the weekend before. And uh I went to go in my first day at work, and I saw the hiring manager with his head down and his shirt untucked, and I walked up to him and was like, Hey, what's going on? He's like, Well, I hate to do this to you, son, but the owner came in today and shut down the restaurant. So I thought I had a job, I didn't have a job, I spent all my money. So I took the first job I could get, which was renewing readers' digest subscriptions, which was terrible. Um they're even still in business. I you know, I I feel like they are in some capacity. I mean, how could readers digest go away?

SPEAKER_00 6:51

It must be some digital version of it or something.

SPEAKER_01 6:53

Yeah, so um, you know, the one thing I learned from that is it's it's not ASCA marketing, it's telemarketing. And so I always took that one little nugget with me forward. But other than that, it was it was it wasn't the most fun. And then I got a second restaurant job. And basically, while I was, you know, starving and figuring life out, you know, everyone in the computer science IT field wanted three years' experience, they wanted all these certifications. I didn't wasn't super motivated to go work at Best Buy um to kind of get there, and so was just again starving and figuring life out. A recruiter from farmers insurance called me and said, Hey, it looks like you possess some of the qualities you're looking for. We'd like you to come in for an interview. And I thought to myself, insurance, you know, why the hell would I want to sell that? Right. And I remember my my insurance guy, my all-state guy, I wasn't impressed. You know, it a lot of people's lens of insurance is through the view, especially when you're young of your home and auto insurance.

SPEAKER_00 7:45

Yeah, which I would say those, I mean, being in the commercial world, I feel like those guys give a bad they're not held with the highest level of respect often.

SPEAKER_01 7:54

Right. Well, obviously, I just said that. I mean, you get you gotta, you know, kind of work work work your way, right? Work your way up. And um, so at any rate, I wasn't impressed. I was like, but my father's always been a big mentor of mine. He's like, just go and see what they have to say. So I was like, okay. So I went in and they're basically like, here's what you can accomplish financially if you work really hard. Insurance is residual based, effectively, uh, residual income. So that all made sense to me. And I I just took it and and ran with it and happened to be, I mean, the insurance is one part of it, but you know, building a business happened to be something I was really, really took to, and I don't know if it came natural, but I certainly worked at it. You know, had the farmers agency for 10 years, kind of capped out that business model. Because if you're with a captive insurance company like a farmer's state, farm all state, you are usually contractually limited to that one option. And so I got to a point where I wanted to play a bigger game. I was 32 at the time, I'd already capped out that you know business model, if you will. And so then I sold it and started the Garzella Group, which originally was just a retail insurance brokerage. And then, as I had said earlier, you know, as I start solving problems to scale that brokerage, it starts spinning off other companies.

SPEAKER_02 9:07

Yeah.

SPEAKER_00 9:07

So how it works. I mean, you start to solve like it. I mean, this is how it's happened for me. You start, you know, like we have a travel agency, which came out of a need. We have a media company because it came out of a need, like that's how you build the business, right? So you went basically from waiting tables to having a massive portfolio today of business.

SPEAKER_01 9:28

Yes, waiting tables. You know, it's funny because I was uh, you know, coming out of college, you know, cool guy in college, and then all of a sudden, you know, you go through college and they're like, Oh, you get this degree. Oh, yeah, and you know, your life is set, things are gonna be great, right? And you know, I I got the degree, and next thing I know is I'm singing happy birthday to people, you know, to try to work in 14 hours waiting tables just to try to, you know, build my insurance business and keep my head above water. Yeah.

SPEAKER_00 9:53

No, and I think that's the thing. Well, and I think I think we were we came up in a time when it was like, well, if you go to college and you get your degree, like you're set for life, like you're gonna make all this money. And the reality is, you know, I always feel bad when people would come work for us, or when I was working on property at hotels and people would go to hospitality school and they would have dropped they would have gotten loans for a hundred thousand dollars or more to go get this degree, and it's like, and guess what? You're the newest front desk agent at the Crown Plaza making twelve dollars an hour. Yeah, you're not gonna walk in and just make you know six figures right away. Yeah, no, I I love that because that is where like I feel like hospitality and insurance are very similar. Like you just it doesn't seem like anybody sets out to do it and you just end up in it. Um, but uh you've made an amazing career of it, obviously. Yeah, for sure. Thank you. I mean, did you like do you genuinely like it though?

SPEAKER_01 10:40

I love it. Okay, I love it, absolutely. And it's it's not even work for me. Yeah, and again, it's just about the I you know I like to build, you know, I'm not necessarily building houses, but right, you know, building companies. And you know, if I if I was if you compared it to, you know, an artist will paint a picture. Well, my artistic expression is you know, effectively building companies and creating opportunities, and you know, it's it's not in addition to that, or another driving factor is of course the people that I bring in, being able to see and watch them grow out of a you know, kind of a vehicle that that was created by myself and now I've got a big team of people, right? But watching them being able to grow and and advance in their career, I get a lot of uh intrinsic value out of it.

SPEAKER_00 11:21

How do you feel like you are as a leader going? I mean, I'm a ma I can only imagine like with that, since you didn't set out to own a company like this, but you built it, and obviously you're probably like one of you started probably, it was just yourself when the Gazar Garzella group was.

SPEAKER_01 11:37

Yeah, yeah, uh 23. Uh just myself. I had my first, let's say I started in let's just call it 2004, by the time I had my licensing and everything. Yeah. And then my first employee was like a year later. Okay. And then in the in the captive world, there's not enough revenue coming in to really grow and build. So I had like, you know, nine employees at the time at the max.

SPEAKER_00 11:58

And how many employees do you have today? Yeah, probably close to 60. Okay. And how do you feel like you have developed as a leader over that time? Well, a heck of a lot of uh trial and error.

SPEAKER_01 12:10

Yeah, it it's a combination of things. I mean, you know, I think that one of the things that's always worked well for me and any you know entrepreneur is I just always move forward. You know, so I may not know exactly how to do something, how I'm gonna do it, maybe new to me, but guess what? I'm just gonna do it, and then I figure out and I learn from it. You know, from a leadership perspective, you know, I remember I remember my first time when I had maybe five or six employees, and I I went to I think uh coincidentally it was Best Buy to get something. I get a phone call and everyone's screaming at each other, and there's a big blow up, and I call my mentor at the time and he's like, What am I supposed to do? And you know, he gives me a little bit of guidelines. So I mean it's just uh been a progressional progressional learning over 22 years.

SPEAKER_00 12:55

Yeah, that's contributed to that, I think. Yeah, because it's interesting dealing with managing people is a whole other animal in and of itself, and while you're building a business. Yeah, everyone's looking to you as the North Star to figure out what to do.

SPEAKER_01 13:08

Yeah, they sure are, and I I think I've you know I've got uh uh a natural skill set for that. Also, both my parents were teachers, have always come at things just naturally from a coaching development perspective, which is really helpful. Patience was taught in your household then. Yeah, very, very much so. Yeah, and so there's a lot of that, you know, foundational, you know, stuff that you wouldn't I think about now. I would never thought about it before, but in reflecting, I'm like, you know, I watched my you know, my mom teach my son, and I'm just like, oh, that was me back. So I was like, man, thanks. Yeah, you know, thanks for all that, all that effort, you know, time, energy, effort, and work that you put into that, because you know, I can see how that's uh translated to my success in the future. Right.

SPEAKER_00 13:52

In the whole in the building of of the company, is there anything that comes to mind where you said I made a mistake and I wouldn't do that again? I believe in people.

SPEAKER_01 14:02

Okay, and so I've had some real high-level producers, productive people that you know have worked for me, and I always try to give them a path towards towards leadership or potentially running one of my other companies. And so there was one individual um that kind of fit that that mold, and I I believed in him and put him in a position to um you know run one of our companies and and he wasn't built for it, you know. And the things that kind of motivate and inspire me that I loved about doing it were things that caused him pain. And so, and I didn't know that. I'm just like, you can do it, I want you to do it, you know, it's it's the next step, and right, and so he did, but ultimately it didn't turn out very well, right? And so it's one of those things where like in that in that situation, yes, and maybe having some more now. I have a little bit more awareness of that now going forward, but it doesn't stop me from staying consistent with the things that have helped me grow to the level which I have, which is you know, believing in people, training, developing them, and putting them in a position to you know, right, succeed.

SPEAKER_00 15:11

Well, because all I mean, and maybe mistake's not the right word, but at the end of the day, like not everybody knows everything. But in this case, uh you obviously learn from it. Yeah, it's it teaches you something ultimately. Yeah, I make mistakes all the time. Yeah, and I think people forget when you're the CEO of a company or the owner of a company, uh the pressure's worse. Yeah, because everybody expects you to have the answers and to do the right thing all the time when in reality, most of us we're just doing what we know is the best to do. We don't actually know the real solution and in not in every situation, you know. Right.

SPEAKER_01 15:46

Yeah, I mean you're you're effectively you know making judgment calls on you know, uh cost benefit analysis and looking at risk, or at least I'm looking at risk, I'm like, okay, what's you know what what what's the highest chances for success in this situation, and then just going with it. And if you make more good decisions than not, then you're usually moving forward. Right.

SPEAKER_00 16:09

Yeah. And if you don't learn, and the thing is you gotta learn from them, right? So that's the biggest thing you gotta learn from them. The one thing that it does seem very important to you and the group of people you surround yourself with that they've had the pleasure of meeting, is it does seem like relationships are very important to you. And you have built a good network of people around you. How did that come about? Like, was that just a natural skill that you had? Like, how did you how do you collect people? I feel like you're I feel like you're a collector of people. Yeah, like I I and I say that as a collector of people. Like I it blows my mind how many people I just if oh you have a problem, I have like no, I know somebody.

SPEAKER_01 16:48

Yeah.

SPEAKER_00 16:49

Or like somebody like has a specific issue with a specific company, and like actually happened to me this week where somebody had an issue with a specific company. I was like, Oh, I know the CEO. Yeah, it's like, and I forgot I knew him. Like you but I like but I do like that's one thing I do respect about you and the folks that I've met through your network has been everybody seems very relationship focused.

SPEAKER_01 17:11

Yeah, I mean relationships are critically important in business, and having good people and the right people are are equally as important because you're not gonna uh grow, um, continue to grow without that. And there's a lot that goes into that. You know, one is um, again, like I I've said a few times, is being able to create opportunities for others. You know, I collect these people because they see an opportunity and in and what where it could take them. Right. Uh I also look for you know what's important to to people, and then I help them get it.

SPEAKER_02 17:48

Yeah.

SPEAKER_01 17:48

You know, and so I look at it from that lens. And then the other one is, you know, I just uh you know, overall I'm just kind to to everyone. And um, you know, and I don't I don't think I'm any better than anyone else. It's the you know, the whole uh generals and janitors uh type of theme where you know if I need to clean what was I doing the other day, changing water bottles. Someone's like, you don't need to be doing that. It's like I'm right here, I can do it. You know, just something simple like that. So I think um a lot of that, and I I you know I'm naturally pretty, pretty humble. And so I think combination of all that attracts the right people um into our company and our organization, or or even you know, related to it in some capacity. Right.

SPEAKER_00 18:34

Yeah, no, I think it's I I have a lot of respect for it just because it's it's rare to find it all the time. And I've been all over the globe and I've seen some people do a really good job of building relationships with people, and others do a really bad job of it. I mean, I attribute it to our Midwestern upbringing.

SPEAKER_01 18:55

It's like that's kind of like I certainly I certainly think that that that's part of it. And the other thing I think too is communication is incredibly important. So answer every email, every phone call, return calls, return emails. I mean, maintaining a high level of trust is important, and you do that through communication. And so, you know, I'm always very big on trying to make sure that everything I said I was gonna do, I absolutely do. And if for whatever reason I can't do it, then I communicate that I can't do it. And so I think that those types of things bring on the right people and be able to, you know, maintain relationships with very high-level people.

SPEAKER_00 19:30

No, 100%. So let's talk about commercial insurance. Sure. So the market is very tough for property owners these days when it comes to insurance. We've all read carriers pulling out of markets, changing what they will cover, what they won't cover. And obviously, the biggest thing that's a conversation, which is a huge conversation right now in the hospitality space, but I would imagine, and I know just from speaking with others that it's an issue across the board with commercial property altogether, is skyrocketing premiums that you know they are paying three, four times what they may have paid, you know, 20, well, 20 years ago is a long time, but like 10 years ago. What do you feel like is the honest evaluation right now of where the markets really sit? Like, is the insurance are the is the premium are the premiums really too high, or is it just the nature of the beast in the market today?

SPEAKER_01 20:24

Commercial property insurance market, or really all the insurance markets over the last call it three, four years, have uh, you know, we call it a hard market because terms tighten up and premiums go, you know, through the roof. And the the market has got to a place where it's pretty much peaked at that hard market. And again, the hard market costs, um, just to get a little bit of an education or driven um by a few uh different factors. One was inflation. You know, we had unprecedented inflation. Of course, when inflation goes up, claim costs go up, litigation costs go up, etc. That was compounded by various departments of insurance not allowing the insurance companies to take rate to offset that. So what would happen is you know, you have unprecedented inflation, and the insurance companies go to the California Department of Insurance, say, hey, I need to take a 20% rate increase, and they either say no, or you can take six, right? And they're already six months behind because you know the bureaucracy, right bureaucracy is slow, and so by the time it gets approved at whatever level, they already need to ask for it. Yeah. So what ended up happening is the insurance companies can't get the rate that they want, but their costs are still going up. So they're like, you know what? We're not writing. And so they pull out of the market. Then what happens is the markets that will write it are more in the excess surplus lines and specialty markets, which Are significantly higher cost. And then compounded on top of that, you've got the catastrophe costs to reinsurance. So every insurance company buys insurance. It's called reinsurance. And so when you have these billion dollar events, travelers is paying up to a certain amount, but then it hits all the reinsurance markets. And so the reinsurance markets then put downward pressure on the insurance companies, which again increase your costs. So that's what's been going on in the last year.

SPEAKER_00 22:27

I think a lot of people don't realize is the insurance company, and you can correct me if I'm wrong on this, but if say that you have a$20 million policy, a lot of times the insurance carrier you think you have is only going to carry a certain amount of that liability. They've sold the rest of that liability to another like reinsurer to cover that. So it's like they're not the sole deciding factor.

SPEAKER_01 22:50

You're exactly right. Yeah. And it has to be that way because you know, in any single, you know, like California Wildfire in 2025, you know, had a single carrier had to be take that. You know, there wouldn't be right that carrier anymore. They need all these reinsurance carriers, and it's usually not one. You know, you've got a bunch that are taking the burden of that massive loss, but then it all of course all comes rolls rolls back downhill. So that's just a little bit of background on why insurance costs have gotten to the place that they have today. Now the market actually is softening. Softening meaning rates are coming down, terms are loosening up. Um, in fact, in uh Avalon, we're seeing rate reductions of 10 to 30 percent right now. Now, the challenge in the hospitality world is you know, hospitality is still largely considered a distressed class of business because you guys have a lot going on. Right. You know, so traditional commercial property, you know, you've got your commercial property, your general liability, maybe your umbrella. Well, in the hospitality world, you get to add on you know commercial auto for potentially for shuttles and valets, uh, liquor liability, yeah, workers' comp, non-owned auto, cyber exposure, salespeople, non-owned auto, the the the doors, you know, the the units they're turning frequently daily versus in the traditional apartment, you know, their long-term year-long leases. And there's just a lot going on. And so as a result of that, the hospitality market, whereas the overall commercial property market is seeing decreases, the hospitality market maybe not so much, and you've got other factors that are playing into it, yeah, which is continues to drive costs up.

SPEAKER_00 24:42

Let's dive into those other factors a little bit. And you're very, you're actually you're very correct in the case, like you know, a commercial building that's got office space that they're leasing is very different than a 200-room hotel that's running 80% occupancy that people are checking in and out, and there's like risk for people that there's slip and fall opportunities. There's all these things that could potentially happen. What is it, and I'm assuming it's the same on the commercial for any commercial property, but what do you feel like people don't do to help themselves in terms of keeping their rating with the insurance company or their loss runs in a place where they can actually be a good get a good rate? I mean, I could give you some examples.

SPEAKER_01 25:31

Yeah, well, so so there's there's a few things. The the biggest one is the you know, the you know, the the best insurance claim is the insurance claim that doesn't happen, you know, for the insurance company and for the owner. Right. And so there's a lot of um upfront, proactive, preventative measures that an ownership group can take as it relates to the management of their their properties, security protocols, etc. Um, building maintenance to make sure that everything is you know dialed in per se to minimize uh the chance for loss. Right. So I think that like on the front end, there's a lot that uh an ownership group can do to help manage and mitigate that as much as possible. Now, let's say you're doing all that, then there's some other factors to consider. One is you know, the how is your current uh insurance program structured and who is it structured with? So, like for example, you know, some of the big names, again, I'll use travelers, um, you know, a lot of them want the uh they they want a small window, you know, a lot of newer stuff. Whereas, you know, the the more it falls outside of that, now you're looking at other different program structures and whatnot. And so, you know, how is that structured? Do you have it structured in a master program? And if it's a master program, is it master to your ownership group? Or are there other ownership groups that are kind to kind of piggybacking off of that structure? And what does the impact of their business practices that you don't have any control over have on your insurance costs in your portfolio? So there's a lot of things. I mean, there's everything that you have control of, and there's the things that maybe you don't have control of, and then there's things that you just don't know that you don't know.

SPEAKER_00 27:24

Which I would assume would be more of like acts of God and things that just Yeah, any of the catastrophe stuff. I mean, catastrophe stuff's gonna happen, and you can't you can't avoid it.

SPEAKER_01 27:34

Yeah, like if there's a massive hurricane that happens to come through, which hopefully it doesn't, and that's gonna put again pressure on reinsurance costs, but that's you know more specific to a commercial property exposure, not as specific to the viability workers' comp and those other lines of business.

SPEAKER_00 27:49

Yeah, no, I think we don't put I think I mean what I see consistently is there's just not enough focus put on the actual risk management uh aspect at the hotel level, right? Because everyone says, Oh, well, like the thing I always love is everyone says, Oh, we have a safety plan. And it's like in a red binder, like in the office somewhere. And then something will happen and you'll ask, Well, do you have this document and this and that? And they're like, Well, no, but we have a safety plan, and then they will send it to you and you'll look at it and you're like, Well, didn't when you read it, did you notice you're supposed to do all the stuff in the appendix? Like, it's great that you had it written, but you actually have to do the things in the plan. And a lot of people, and I don't think I think they just don't think. And a lot of times, especially in the franchise community, the hotel owners or the operators are assuming the franchiser is looking out for them. Right. But the only thing they're looking out for is you're that they get a certificate of insurance that says that they have the minimum requirements for their franchise agreement. Right. So then something does happen, or they're just the rates keep going up because they call every time, which is a another common thing, which I would love your perspective on. Is you know, you said like the best insurance claim is no claim at all for both sides. Right. There's a lot of people, and I am curious. I'm assuming this happens in other commercial verticals as well. When something happens, the in the immediate thing is called the insurance company. Which is there like a like we I've had a conversation about like ADA compliance with another guest this season, and you know, we talked about the fact that sometimes it's better just to pay out than settle for like five grand and let it go away, as opposed to litigating it just because the cost benefits not there. Like, do we call the insurance company every time? Does that affect us too if we're just calling every time? Or you really need a new, like you need a new roof, but you just call you you're trying to get a roof through the insurance carrier?

SPEAKER_01 29:48

We refer to that as viewing your insurance as a a maintenance plan and not necessarily for you know the for the things not not necessarily for the things that ruin your day, but you know, you want it for the things that would ruin your life perspective, like at that level. And so if an ownership group is looking at their insurance again as a maintenance plan, the insurance companies look at two things. They look at frequency and then they look at severity.

SPEAKER_02 30:16

Okay.

SPEAKER_01 30:16

So if you continue to have the frequency, they don't like it. If you have the severity, they don't necessarily like that either, but usually the severity hopefully is isolated to maybe a single incident, one-off event. And so where the uh challenges can come in is the ownership group's view of their insurance. And you know, the the insurance companies, you know, they're they're a business too. You know, I I compare them to a casino. The house isn't gonna lose.

SPEAKER_00 30:46

And if the house is actually, I never thought about that, but that's actually a very good way to look at it.

SPEAKER_01 30:50

Yeah, and if the house is losing too much, they're gonna kick you out of the casino. Right, yeah, you don't get to go back. No longer go back there anymore. Right. So there's an appropriate way to use your insurance, which is for again the stuff that that is detrimental to the operations and not necessarily the the smaller stuff or just kind of putting putting every claim in that you can, so to speak. The other thing, too, that's happens a lot, which drives up costs, is there's probably about 20% minimum to 40% claim creep on just about every insurance claim, property insurance claim specifically. And that's uh often due to the view again of insurance. Insurance is supposed to be I had a loss and you get me back to pre-loss condition. Well, insurance has become in some instances viewed as a financial windfall. So it's like I had this claim, how big can I make the claim, and how can I profit from this claim? And so there's opportunistic individuals in that circle in the form of you know, some contractors, some public adjusters, yeah, et cetera, which will focus on the max payout versus the pre-loss condition. And what ends up happening is that comes back to not only the the owner who may be experiencing that claim, but also in a holistic picture.

SPEAKER_00 32:16

And there's a lot of those. A lot. Yeah, I mean, yeah, as you're as you're explaining the whole thing, like it was in my head, I was like specific people started coming into my head that that you know, and I and it does happen, like when we were in the third-party management game, having you know, people would have a claim, a legit claim, and then it always would become well, this happened too. No, that did not happen, sir. Like, and I, you know, and at the time, like luckily, like it's like, well, I am not telling them that that has happened. Like, I'm not gonna tell them that because it was broken to begin with, like, you know, or whatever the situation was. It is interesting. I'm like, to hear you say it is I know it exists, but to hear you say it just gives me a funny feeling because it's just like it is so prevalent. Because I think I think people do look at it as, oh, great, that we can get an insurance claim, or we have an insurance claim. There's already there's damage or there's something happening, and it's like, let's see how much money we can get out of it. When in reality, it's like you don't want to like you don't want the claim to be as big as you can possibly make it. Yeah. Because people think money's free. You know, we talk about this. Uh, there's a thing in hotels called key money. I think it exists in most franchise businesses where they'll give you key money. The franchise org gives you money when you open a hotel with them. People get very excited. Damn, get very excited because they're like, it's free money. It isn't free. You, it's a f it's an interest-free loan that you're paying off over the course of your contract. And the flip side of that is you're paying higher fees monthly. And if you didn't take the key money, you pay lower fees on a monthly basis. So the reality is, much like insurance, they're going to recoup the money. It is not free.

SPEAKER_01 34:04

Yeah. So same with I I mean, yeah, and it gets to a point to where it's unsustainable at some point, at some level, if not managed properly. And and what could be uh win for you in the short term could be a massive loss for you in the long term. Because once you get out of that place to where you know you're unprofitable to an insurance company, you know, none of them want, yeah. Right. And in the current market, where you don't have a lot of options for the hotel owners, that results in a pretty, pretty steep increase.

SPEAKER_00 34:37

Yeah. In defense of our industry, I would say it's 50% of 50% of the assets in the in the sector, I would say, are just managed badly and they haven't managed the programs correctly. And then the other 50% are dealing with the fact that the other 50% are not doing the right things. You're exactly right. So it's like, and then they don't have nowhere to go. Another thing that we see a lot is person A has a buddy that's a um insurance agent. And you know, we actually just had this happen earlier or last year. We had a sale that we were doing, and the we got contacted by an insurance agent for the buyer. Well, he is a he was like a person, like he was like sold auto and home and like home property insurance. And I kept asking him all these questions, and he's like, Sir, I don't know what you're talking about. I was like, I don't know that you're qualified to sell this insurance. Like, and he was very offended, and I didn't actually, I don't even know what ended up happening to that guy. I never don't think we ever talked to him again. But how often do you see that where you end up with like a commercial property where like somebody they have a guy, but it's like the guy's not qualified very yeah, very often.

SPEAKER_01 35:48

And here's here's the dynamic of it is insurance has been so commoditized by you know the say 15 uh in 15 minutes, and it's just been really, you know, at the home and auto level, you know, the most basic level, it's just been stripped down to basically just a pricing mechanism. And then you have these big names, farmers, all state, state farm, whoever. And so there's a lot of brand trust in that name. And so what ends up happening is you know, these ownership groups, say state farm, state farm agent, but then there's still a lot that goes into the knowledge of the product and everything that goes along with it to make sure that you're acelling them the right product, structuring it properly, etc. And so a lot of people just don't really, unless they specialize in it, don't really have the level of knowledge that they need in order to be able to write it effectively and and often you know write it at a good price point.

unknown 36:48

Yeah.

SPEAKER_01 36:48

So we see that see that all the time.

SPEAKER_00 36:50

How often do they actually end up binding those policies and then they come is do they end up binding them and then come back like a year later, like crying? Yeah, they show up saying, I need help. We'll see that from time to time. Yeah.

SPEAKER_01 37:02

And and the other thing too is I mean, there's been, I think you alluded to it uh earlier on in the conversation. I mean, there's been a lot of changes, uh, Fannie Mae and Freddie Mac guidelines, which have put a lot of pressure as it relates to the terms that are being offered being acceptable from a you know liability standpoint and what's being offered by the insurance companies. And so if you don't have knowledge of that, and you get people look at a limit, liability limit of 1 million, 2 million is pretty much the standard. Yeah, they don't look at any of the exclusions, they just see the limit and say, Well, I got a million, I got a million. Well, a million over here is not the same as a million over here, right? It's very dependent on the endorsements and exclusions that are behind that million. And so if the agent doesn't know to look for them, then you can find yourself in a situation where you buy a policy, it goes to the lender, lender says it's not compliant, go back to the agent, the agent says, I can't offer it, and now you're working backwards, right? Right. So there's a lot of scenarios that can occur just around the you know changes in lending requirements and things of that nature.

SPEAKER_00 38:19

You know, it's interesting you say that because what I and I've personally come across this with clients over the years where they have gotten the broker they're using has gotten them what they feel like is a great deal. And it does meet the requirements of the bank and it meets the requirement of the franchise. But then, say like a tornado will happen or something happens and they find, or like there's a f a wildfire, and they find out like the wildfire example, like half the hotel burns down in a wildfire. Well, they think they have insurance. Well, one of the exclusions was fire, like it's not covered. Um, or you know, in the case of a tornado, like your the exterior of your building has been excluded from the policy, right? And then the brokers, in some cases, don't even mention to the client that that's how they got that savings. My sister told me this once. She's like, because I we were in a conversation about a lender, and she's like, you have to understand they're checking off a list that they get. Unless there's a problem, they never really go actually pull the information and really look at it until there's a red flag or something to go actually see, you know, what's going on? I feel like that happens sometimes too, or maybe something should be included, like the fire situation, like it should be covered, and yeah, the bank requires it, but nobody noticed it at the bank either. Is there something that the average person when they're renewing their policies or they're buying getting ready to bind insurance before they give the go-ahead and sign? Is there something that you would recommend for them to do? Which I feel like your answer to me is going to be they should read it themselves. But I do feel like, especially on the commercial side, the brokers are very reluctant to give the owner the policy. Well, they should always have the policy. And they like will give you a proposal on a separate deck or something, and then they'll just send you the accord forms to sign, to bind, and like so. Then it's a question of like who actually sees the policy, and unless you ask for it specifically, sometimes you just don't see it.

SPEAKER_01 40:22

Yeah, they they they should have the policy 100% of the time. And if they're with uh, you know, a direct carrier, again, like a a traveler's or farmers, they usually have it because it's usually sent to them. Right. If they're um more in the excess surplus line space, then the it takes the broker 30 to 60 days to get it from the carrier, um, but then it needs to go right to the insured. And I think that, you know, as part of the renewal process, I mean, take the the the agent and the broker out of it and just look from the ownership group. Any changes to your operations in the last 12 months need to be communicated to your insurance broker as part of or before your renewal process, so that can be taken into consideration. It's also wise to provide them with a copy of your lender requirements. You know, maybe they've changed, maybe they haven't. One thing that always changes is the business income always seems to go up. So if you don't address that on the front end, then you give them what they had last year, and then you get a notice that says you need another 400,000, and then of course, then you have to revise it, which is fine, it's not a big deal, but it's just there, there's a proactive approach to it because you have expertise in it and you know what you're doing. Um, so that you know, like myself, I can ask for this and look for this type of stuff up front. And I've got all of these other examples, not just one example of all these other commercial property owners that I'm working with, which through the volume, you know, you can see the trends and you can see the different things are coming to the market in terms of exclusions or increases, etc. And you can be ahead of those so that you know the process we're we're we're managing all the back-end frustrations so that your renewal process can be as streamlined as possible, versus the other side of the coin, you know, take that out of it, and you're just working with, you know, yeah, a generalist, let's say. And you know, it's it's the the results only gonna be as good as you know, kind of what you put into it, so to speak. And if you don't put anything into it, then you know probably chances are it's gonna be status quo.

SPEAKER_00 42:36

A lot of people wait too late, too. I feel like people get in a situation where they insurance is renewing in like two weeks, and then they're kind of at the carrier's mercy in a sense, I would assume.

SPEAKER_01 42:49

Like there, well, there's a couple parts to it, you know, like on the insurance side, we try to start things depending on the size of the account, as early as 120 days ahead of time. Um, but often it could, you know, on average that's just say 90 or 60, but it's not important to the owner until it's important to the owner.

SPEAKER_00 43:07

When they get the notice that your insurance policy is going to be.

SPEAKER_01 43:10

Yeah, or or or they're or they're two weeks out. And the problem is, the problem with that is is the more time that we have to negotiate as brokers, the better result that you get, right? Right. And so if I've got 90 days to negotiate and work all my levers with all these different carriers and have all these conversations, you can get creative. I can get creative and I I can get you a better result. But if I'm asking for information for three months and you give it to me two weeks before, after you got your renewal, and you know it's going up 20, 30 percent, now my window of opportunity is our window, I should say, is quite a bit less.

SPEAKER_00 43:44

Yeah. Which I think goes back to your point earlier where on the personal insurance side, it's so it's a commodity, essentially, and like people are used to being able to do it self service where you just go in and change everything yourself and it recalculates. Yeah, whereas it doesn't necessarily I'm assuming there is a tool you use that. It's somewhat like that, but in order for you to negotiate, you've got to have time.

SPEAKER_01 44:04

Yeah. So so in your world, in the hospitality world, it's quite a you know the higher levels of complexity. So there isn't what you're referring to is uh like a comparative rater where you know I'm gonna put in one set of data and they're gonna shoot out all these rates to all these cares, and say, I'm gonna pick that one, which is probably how you know a lot of ownership groups maybe think that the process works might be working on our end, which which it's not, right? Like there's a lot that goes into it, and we're not just talking to one underwriter, we might be talking to 10. And if you have other lines of business, we're talking to them, like it's an actual conversation. Oh, yeah, yeah, yeah. Data conversation. I mean, we're telling the story effectively. So the better that we're able to tell the story to them, the better result that we're gonna get. Well, our story needs to be based on information that we're getting from you. So if we're not getting that information, our stories is only as good as the information that we have. And in underwriters, they're they're document hawks, so they have to be able to justify why they gave this extra 15%. Because if there's a claim, they get called on it, right? And then their file gets checked, and if they don't have everything buttoned up, well, then they've got a problem, right? So that's a whole dynamic that you know typically an ownership group wouldn't think of. Even a lot of agents don't think about it. I mean, it's one of the things I teach all the time is like, look, you're telling a story, right? The better story you're able to do. It's all about the story, yeah. The better story you're able to tell.

SPEAKER_00 45:36

Even getting lending for a hotel, it's the story. Yeah. You know, I it happens so it's so frustrating across the board sometimes between like people trying to get loans, insurance, all these different things that we have to do. And the it comes down to the quality of the story you're selling. You might have a really good story to sell, and you're just not selling it right, or maybe it's not as shiny as it could be, but we could shine it up. We can still be truthful, but not make it as like bad as it seems, right? Because again, there could be a one-off situation where something happened that if you have all the information, yeah.

SPEAKER_01 46:13

And again, that that's you know, going back to our relationship conversation earlier. There's a big relationship component in the insurance world with our underwriters as well. Right. So, you know, the relationship that I have with an underwriter with a market can get things done that another person that doesn't have as strong a relationship with that market maybe can't. Right. Right. So there's a big relationship, there's a big trust aspect that's into it, and there's a big, you know, there's a big story component.

SPEAKER_00 46:41

Yeah. So one last thing I want to ask you, because this is what happens. I see this happen so many times. Somebody says I don't like my insurance rates. And so they decide, they're like, Well, I want you to go to your guy and shop it. And what they don't understand, and that I would like to explain to my audience, is you can go to three different brokers, but they're all calling the same people. And guess what? The other person you went to is gonna find out that you already shopped it.

SPEAKER_01 47:09

Yeah, you're exactly right. So what happens is you end up working against yourself, you know. So you're like three brokers, more carriers, more options. No, they all, for the most part, have access to the same set of carriers. Um, and so you should base your broker of record or agent of record off of trust, not price, because if you trust that broker, they have, especially again, if you're talking about the ENS markets, they have access to all the same carriers, right? The only differentiating factor, and this is the one thing that you know that makes Avalon uh very special for our retail insurance brokerage. And the question that if I had a relationship and someone approached me that maybe I'd entertain is do you have anything proprietary or exclusive? Like you can only access like Arcstone, which is our retail brokerage, you know, our silver bullet is Avalon because you can't get it anywhere else. Right. So I can go to other ownership groups and they're like, what do you have that my guy doesn't? And I'm like, Well, we have Avalon, he can't access it. But outside of something exclusive like that, the brokers typically have access to the to the same markets, assuming that they have a specialization in it, right? So you also have to have the knowledge, right? Right, you can have the access, but you don't know that you have the access or nowhere to go. Yeah, that doesn't do you any good either. So I think that if you're a sophisticated ownership group, or or really I guess I guess it applies to any ownership group, like focus on the person that has the expertise and that you trust and allow him to shop the market, and then you could ask him, like, are have you approached everyone you need to? Yes. Okay, once that's done, if you felt the need to ask a second person, then you could do that, they'll have a subset of markets to work with. Right. Because the other thing, too, that becomes painful in the whole process is if you go to a bunch of brokers at the same time, you know, he might have the best care over here, you have the best care over here, you have the best care over here. You end up artificially inflating your insurance costs because you didn't get the best of the best all in one place because you're operating from the point of like, I'm gonna go to all these people, and right, you know, it it actually ends up working against you, especially if you have to layer the program.

SPEAKER_00 49:32

I always laugh when they sign the broker of record um change letters, and then they're very confused. They're like, but I want the fur, then they'll want to go back to the first guy that and it's like, well, we've you've already asked to change, like you've changed, like now we're gonna do this whole process again.

SPEAKER_01 49:50

And and and honestly, if you're the broker on the other side, and this happens all the time too, like it's very frustrating, I can imagine. I mean, I just had uh one of our agents was working on a very sizable deal, and of course, the the price was significantly less, and then uh he went back to whoever he went to, and they saw it and they're like, Oh, yeah, just sign this letter, no big deal. So then they sign it, then it takes all the work that that agent has done, spent the last two, three months on, and just gives it to this other broker. And there's not a lot of transparency in the sign the letter, it's just kind of a lot of times this nonchalant thing. But now that that happens, now the broker that did all the work has got five days to fight to get it back, which just again creates all this conflict.

SPEAKER_00 50:33

And they have other things they couldn't be doing in that five minutes.

SPEAKER_01 50:35

Yeah, and it impacts the ownership group too. Yeah, you know, so there's just a lot of dynamics. So, long story short, you know, as I had said earlier, like it's relationships, yeah, relationships and expertise, right? And base it off of that and let you know, if you're gonna trust your broker, trust your broker. And then outside of him, once his submissions done and dusted, if you feel the need to get a second opinion, then do it. But don't sign a broker a record letter taking away all of the work that the other person did, um, because you're gonna you're gonna end up just in a mess.

SPEAKER_00 51:06

Yeah, and it hurts the relationship at the end of the day. Yeah, it does. It's like, all right, we don't want to work with you. Yeah, because now you don't look serious, yeah. You're just gonna run off to the next guy. So well, Dan, thank you so much for joining me today. This is incredible. If anybody wants to get in touch with you, how do we how do we find you? Or how do we find Garzella Group?

SPEAKER_01 51:24

Yeah, if you go to Garzella Group.com and then we've got if you go to our brands, it'll list the companies, and there's a contact us and you can call the number. You know, you send an email to dan at garzella group.com. It's probably the easiest way to get a hold of me. And then I um can answer any questions or facilitate uh whatever needs to be facilitated to uh one of our other companies.

SPEAKER_00 51:46

Perfect. And he does respond to every email. Yes, so there you go. Fantastic. So awesome. Thank you, Dan. And uh thank you, everybody, and we will see you next week. Check in with Brian is a production of RH Media Productions, executive produced by Tyler Alexander. The views and opinions expressed in this episode are those of the host and guests, and do not necessarily reflect the positions of Reliance Hospitality Global Limited Co., its affiliates, or subsidiaries. All content is provided for informational and entertainment purposes only and should not be construed as professional legal, financial, or investment advice. Always consult a qualified professional before making decisions regarding your business.