Risk Rising Across Australia’s Hotel Sector

Australia’s hotel sector remains a compelling investment class, but as assets become more complex, so too does the risk profile that underpins them.

Risk in hotels rarely sits in one place

Hotel risk does not exist neatly within development, ownership or operations—it spans all three.

Decisions made during design and construction can influence how an asset performs operationally and how it is viewed by insurers long after completion.

Materials selection, construction methodology, contractor arrangements and staging all shape future exposure, particularly when projects involve mixed-use components or complex operating models.

For owners and investors, risk is further shaped by how responsibilities are allocated through leases, management agreements and joint venture structures.

These arrangements determine where exposure ultimately sits and whether it is appropriately aligned with the party best placed to manage it.

Operating models reshaping traditional exposures

The evolution of hotel operating models continues to introduce new layers of risk.

From increased reliance on digital systems and data to shifting labour dynamics and guest expectations, many exposures now extend beyond the physical asset itself.

Cyber events, business interruption scenarios and liability considerations are increasingly relevant across hotel portfolios, even where the underlying buildings are well understood.

These operational factors often interact with insurance in ways that are not always immediately visible, particularly where multiple stakeholders are involved in the operation of a single asset.

Property and liability exposure

Hotel property exposures are driven by their high constant guest turnover, 24/7 operation and geographical locations.

Key risks include kitchen/electrical fires, natural catastrophe disasters (flood, storm, bushfire, hail events), water damage incidents and theft or vandalism caused by hotel guests.

These exposures can be insured via a comprehensive insurance program that provides key coverage of the following:

• Property damage (building and contents) provides cover physical loss or damage to the hotel structure, furniture, fixtures, and equipment due to events like fire, storm, flood, or malicious damage.

• Business Interruption Insurance can reimburse lost income and covers ongoing expenses (such as staff wages) if the hotel or certain rooms in the hotel are no longer fit for purpose because of a physical loss.

• Machinery breakdown and electronic equipment help to protect against the cost of repairing or replacing broken AC units, kitchen equipment, or IT systems.

• Theft and burglary help cover loss of property due to theft.

• Glass breakage covers broken windows, doors, and mirrors.

• Slip, trip and falls.

• Third party liability.

• Operational liability.

Market conditions influencing how risk is viewed

At the same time, the insurance market itself is changing.

Insurers are becoming more selective, policy wordings continue to evolve and claims outcomes are subject to greater scrutiny.

As a result, understanding how risk is presented and how exposures are structured is playing a more prominent role in achieving sustainable insurance outcomes over time.

In this environment, insurance tends to function best when considered as part of a broader risk framework, rather than as a standalone procurement exercise.

A broader conversation for owners, investors and developers

For hotel owners, investors and developers, the challenge is not simply identifying risk but understanding how it intersects across the asset lifecycle and within a broader portfolio context.

A clearer view of exposure across physical assets, operating structures and contractual arrangements can help to support more informed commercial decision-making, particularly as projects scale or portfolios diversify.

As the sector matures, the discussion around insurance and risk continues to move beyond policies and premiums, toward a more considered understanding of exposure, accountability and long-term asset protection.

If you’re looking for clearer guidance on risks and insurance in the hotel sector, feel free to reach out to the team at Lockton.

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