Frenchman’s Reef, the largest resort on St. Thomas, was smashed by Hurricane Irma, which breached roofs, caved in walls and felled trees across the oceanfront property. Two years later, the hotel remains closed as its owner quarrels with insurers over millions in damages.
It sounds bad, but it’s business as usual in the Caribbean, where resort owners balance room rates against insurance premiums and brace for the next disaster. Frenchman’s Reef is a good example. It closed for extensive repairs in 1997 after hurricanes battered the property in previous years.
Despite the risk, hotel owners continue to justify investing in the region, tapping insurance markets to offset risk and paying asset prices that reflect the likelihood of future hurricanes. That rationale is getting tested as the recent run of destructive storms makes it harder and more expensive for beach resorts to get insurance.
“My concern as a broker is that people are starting to think about this as, is it the new norm?” said Michael Rouse, U.S. property practice leader for Marsh LLC, the insurance brokerage unit of Marsh & McLennan Cos. “How much does climate change have to do with the severity and frequency that we’re seeing of hurricanes that are making landfall?”
Beyond property damages, beach hotels from Puerto Rico to the Florida Keys struggled to attract tourists following the 2017 hurricane season, even long after airports and hotels had reopened. The mega-resorts of the Bahamas, which were mostly untouched by this year’s Hurricane Dorian, have to remind vacationers that they’re still in business after the Category 5 monster wiped out parts of the country.