At RISKWORLD in Philadelphia, Risk & Insurance caught up with Alexandra Glickman, Senior Managing Director, Global Practice Leader-Real Estate & Hospitality for Gallagher. What follows is a transcript of that discussion, edited for length and clarity.

Risk & Insurance: What kind of operational and insurance challenges do the currently popular mixed-use developments in luxury hospitality—combining hotels and condominiums—present?

Alexandra Glickman: These properties can be challenging to manage because you’re dealing with two very different stakeholders. On one side, you have condo owners who have spent millions of dollars and have distinct expectations regarding operating expenses and what they perceive as their right to quiet enjoyment. On the other side, you have the hospitality operations team trying to keep the asset running, keep paying guests engaged, and manage food and beverage services.

From an insurance standpoint, it is not just a valuation issue; you can calculate replacement costs and business interruption versus condo expenses relatively easily. Where it gets interesting is when you have a Homeowners Association (HOA) on one side and an operating hotel on the other, and they’re sharing insurance limits and real property allocations.

Typically, the entire asset is insured under a single program, with the premiums split based on exposure. This creates financing hurdles. For example, in Hawaii, you cannot secure a mortgage unless the asset is insured to 100% of its replacement cost for wind. But what if the probable maximum loss (PML) isn’t 100%? What if the PML is only $20 million on a $100 million asset?

While the development trend will certainly continue, developers must be acutely aware that all related parties may not share the same operating philosophy.

R&I: Are owners divesting from climate-exposed regions in favor of safer, inland markets?

AG: I don’t think owners are divesting from these regions; rather, they are fortifying their properties. The insurance industry is responding very favorably to assets that utilize physical or natural barriers to mitigate risk.

For instance, in Tier 1 wind zones, some owners use literal physical barriers like sand dunes to protect the asset. Others are implementing natural vegetation that essentially acts like a sponge to absorb water. It’s well-documented that investing in this type of advanced risk control limits the amount of remediation needed after an event.

However, the approach depends entirely on the ownership structure and investment horizon. A private equity fund planning to hold an asset for only four years might decide against that kind of capital expenditure (CapEx). Conversely, a family office intending to pass the property down to future generations will have a completely different, long-term philosophy. Ultimately, we’re seeing more rigorous loss and risk control being practiced because owners need these assets to stay operational—a hotel is of no use if it can’t put guests in rooms.

R&I: How are nuclear verdicts and the rise of third-party litigation funding changing the way global real estate owners structure their coverage?

AG: The reality is that unless we see federal legislation to contain nuclear verdicts, we will continue to see a contraction of capacity. Because tort law is handled on a state-by-state basis, insurance carriers are going to keep cutting back on their limits. They will continue to push strict exclusions for sexual abuse and molestation (SAM), habitability, and assault and battery—the latter being incredibly germane to the multifamily sector.

Plaintiff’s counsel has zero motivation to change this system, and as long as third-party litigation funding remains unchecked, it runs entirely contrary to public policy. It creates a mindset where people feel entitled to risk-free payouts, but society pays for it one way or another through increased costs.

I think it is going to take a true systemic crisis to force change. When I started as a broker in 1983, the liability market was so severely choked that Little League teams couldn’t even secure coverage. Eventually, new insurance companies formed and capacity returned. We are at a similar crossroads right now. Meanwhile, property insurance looks great today compared to the nightmare it was two years ago, but that market is highly cyclical.

In response to this hard liability market, I know one carrier in particular that is trying to push a claims-made form for umbrella coverage. While that specific shift likely won’t gain traction with buyers, the fact that they are trying tells you exactly how desperate the excess liability market has become.

R&I: With many states now requiring transparency in third-party litigation funding, do you expect to see a stabilization in liability premiums by the end of 2026?

AG: Honestly, I don’t think it’s going to slow down this year until we see truly meaningful, systemic reform. Third-party litigation funding has roughly tripled in just the last two and a half years.

But it isn’t just the institutional funding driving this. There has been a fundamental shift in claimant behavior. Even just a couple of years ago, if a guest was injured, say on a faulty piece of gym equipment, they would walk down to the front desk, report the incident, and see how management would handle it. Today, in probably 80% of cases, the very first notice a hotel or multifamily operator receives is a letter from an attorney.

As long as this “what do I have to lose?” mentality persists, the market will struggle. While nuclear verdicts grab the headlines and are undeniably horrific, the everyday reality for operators is death by a thousand cuts. Frivolous or minor claims that used to settle for $1,000 jumped to $10,000, and now they are costing $25,000.

To get a clearer picture of this trend line, proprietary data is becoming invaluable. For instance, Gallagher has accumulated claims data from our clients through our Blueprint platform. Analyzing that volume of data on a per-claim and cause-of-loss basis will be fascinating, and it will show us exactly how these trend lines are evolving across different asset classes.

R&I: How is the ongoing labor shortage in hospitality impacting service level agreements (SLAs) and management contracts?

AG: It’s a massive issue, and it’s forcing many operators to structurally alter their service offerings. For example, we are seeing a widespread shift in housekeeping toward “opt-in” models, where daily room cleanings or linen changes are no longer the default unless requested by the guest.

Critically, this shortage is having a direct impact on workers’ compensation. When you have fewer people on staff, individual employees are forced to do more physical work at a faster pace, which significantly increases the likelihood of an injury. Labor unions in certain jurisdictions are pushing back hard on this workload, implementing strict caps—such as mandating that a housekeeper cannot service more than 18 doors in a single day.

This environment is giving labor a lot more leverage. At the same time, the scarcity of workers is driving up baseline operating expenses, which ultimately has to be absorbed by the consumer through higher rack rates.

In this landscape, formal safety training has never been more vital. It sounds rudimentary, but proper training on lifting, twisting, and physical ergonomics makes an enormous difference. The most successful operators right now are the ones who understand that protecting their bottom line starts with knowing how to keep their existing employees safe.

R&I: In the office sector, there’s significant discussion about converting “zombie buildings” into residential use. What are the most common risks that catch developers off-guard during the underwriting process for these conversions?

AG: People are often surprised by just how difficult it is to convert an office building into any type of multifamily asset. To make it work, the building’s footprint and window placement have to be a perfect, unique scenario. Typically, successful conversions involve older assets built with less of the building’s core “guts” concentrated in the deep interior, pushing more usable space toward the perimeter.

During the underwriting phase, developers frequently underestimate the staggering capital expenditure required. They don’t realize the extent of the costs associated with asbestos remediation, or the massive overhaul needed for HVAC systems. An infrastructure design that was a great idea when the building was erected in 1947 or 1950 rarely complies with modern building codes.

While adaptive reuse sounds fantastic in theory, the additional expense is generally prohibitive. Consequently, these office-to-residential conversions happen much less frequently than public perception suggests. In many markets, like New York, developers are finding that it is actually more cost-effective to tear the building down completely and start over from scratch.

R&I: Geopolitical volatility is top of mind for global risk managers right now. How is instability affecting global hotel brands that rely on international travel?

AG: It raises a fundamental insurance question: does a geopolitical event—whether it is conflict in the Strait of Hormuz, general travel discomfort, or a fear of jet fuel shortages—constitute direct physical damage to a hotel operator? The answer is no. For standard business interruption or contingent business interruption to trigger, there must be a direct physical loss or damage connected to the cause of loss.

This gap between economic reality and insurance coverage is one of my biggest concerns for the industry. Operators are seeing distinct slowdowns in international travel corridors; they still have to carry their fixed operating expenses, but they have fewer guests coming through the doors.

Interestingly, what we are hearing from our hospitality clients is that the ultra-high-end luxury market remains incredibly resilient—demand there is insatiable. To put that in perspective, a $1,000 nightly rate used to be considered the peak of luxury. Now, the new benchmark in gateway cities like London is $2,000 or $3,000 a night.

The geopolitical slowdown is having a much harsher impact on the middle-market sector. Mid-tier hotels have to stay operational to service their debt and maintain costs. As international travel patterns continue to shift, I think we could see an increase in “zombie hotels” within that middle market because the demand simply isn’t returning to historical levels. &