7 Hotel Insurance Coverages And Costs

When deciding to open a business that provides a place for people and their personal belongings to stay for a short period of time, hotel owners take a significant risk.

Aside from the obvious liability concerns, there are significant risks associated with property asset losses. While the exposures and insurance needs of individual hotels cannot be fully addressed in a single short article, there are several essential coverages that are universal requirements for all hotels.

Costs and coverage. When it comes down to it, this is what the insured cares about. They want to know that their hotel insurance will protect them when they need it and will not cost them an arm and a leg.

You must consider hotel insurance coverages and costs in order to answer the most frequently asked questions by prospective clients. With this information updated for 2022, you can reassure clients that they are receiving expertly crafted coverages tailored to the hotel industry at a market-competitive price.

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What exactly is hotel insurance?

Hotel owners have significant investments in their property. They purchase insurance to protect their business against various types of damage and litigation.

However, property damage and lawsuits are not limited to standard hotel operations.

What Should Hotel Insurance Include?

In hotels, there is plenty of room for things to go wrong. That is why they require broad and comprehensive insurance policies that will cover them regardless of whether there is a fire in the kitchen or a slip at the pool.

Here is a list of the insurance coverages that many hotels require:

1. Building and Commercial Personal Property Insurance

This coverage protects the hotel business against physical damage to the structure or its contents. Supplies, furniture, and even some coverage for the personal property of others are examples of business personal property.

However, be aware of the limitations and items excluded from this coverage form, and be sure to discuss with your agent the numerous available endorsements that serve to broaden or expand coverage.

2. Dismantling of Equipment

This coverage is sometimes referred to as boiler and machinery coverage, but the more common terminology now is Equipment Breakdown.

Equipment Breakdown coverage protects the company against losses caused by the sudden and unexpected breakdown or tearing apart of scheduled equipment. Equipment breakdown should not be confused with warranty coverage for heating and cooling components, but it can still be useful to have.

The coverage is divided into three parts: damage to the equipment as a result of an accident, damage to other property as a result of the equipment breakdown, and loss of income as a result of the covered equipment damage. If the hotel’s central heating or air conditioning system fails unexpectedly, for example, the hotel’s loss of income due to being temporarily out of commission may be payable at claim time.

3. Business Earnings and Extra Expenses

This coverage is sometimes referred to as “BI/EE,” and it covers income loss caused by a covered cause of loss.

For example, if the hotel burns down and becomes unlivable for an extended period of time, Business Income coverage can pay the business owner to replace their lost income while they are unable to conduct normal business operations.

Payroll for key employees can also be included if the business owner believes it is critical to keep key personnel on staff by continuing to pay them during the rebuilding period. Extra expense coverage is self-explanatory, as it pays for operational expenditures incurred after the loss that exceed the standard costs of running the business.

As previously stated, BI/EE claims can be triggered by an Equipment Breakdown loss if a hotel owner has elected to purchase Equipment Breakdown coverage.

4. General Commercial Liability

Perhaps even more important than Property Coverages is having a Commercial General Liability policy, or CGL.

Liability insurance is an essential component of any business. There is a significant amount of exposure with hotels and other habitational types of risks because the business is potentially liable for bodily injury sustained by its guests. These claims could include anything from a guest slipping on an icy sidewalk to more tragic situations caused by a building fire.

5. Workers’ Compensation

Most hotels have some kind of staff, whether it’s housekeepers or office personnel. Although laws vary by state, every state requires business owners who employ workers to carry Workers Compensation insurance.

Worker’s Compensation is the only way for injured workers to receive benefits after being injured on the job. Employers who carry a Worker’s Compensation policy are legally protected from employee lawsuits.

At the same time, the consequences of failing to carry Workers Compensation can be severe. Non Compliance with Workers Compensation statutes results in the loss of common law protections from employee lawsuits, as well as significant fines and, in the worst cases, jail time.

6. Umbrella Insurance

An umbrella policy is an optional coverage that provides additional liability limits above and beyond the limits provided by Commercial General Liability and Business Auto policies. An umbrella policy should not be considered optional for hotel owners.

Because of the numerous premises and product liability exposures that exist when operating a hotel, as well as the large number of occupants that may be staying at the hotel at any given time, it is critical that a hotel protect its business and assets with adequate liability limits. It can be difficult to determine how much Umbrella Coverage to purchase. Umbrellas are sold in “layers” of one million dollars each.

The value of the business’s assets will determine how many layers you should purchase first; it is a good rule of thumb to purchase liability limits that at least match your property values.

7. Cybersecurity Liability

The size of the hotel property influences the cost of cyber insurance premiums. The larger the hotel, the more exposure it has and the higher the premium.

The presence of more employees and visitors increases the possibility of breaches and other cyber vulnerabilities. This includes POS systems, public Wi-Fi networks, mobile-enabled key cards, and third-party data-sharing networks such as online travel agencies (OTAs).

A hotel’s insurance portfolio will almost certainly include more coverages than those listed above. Utility Services-Time Element Coverage, Business Income From Dependent Properties, Signs Coverage, Law and Ordinance, Cyber Liability, Business Auto, and other coverages and policies should all be discussed with a licensed agent in your state of operation.

The above-mentioned coverages are a starting point for discussion, and they can assist hotel owners in beginning to evaluate some coverages that address some of the most common loss situations encountered by their type of business.

Why Can’t Hotels Afford To Be Underinsured?

It is all too common for hotels (and any other type of business owner) to choose the cheapest insurance policy available. But, as any insurance broker will tell you, that would be a huge mistake. Hotels, in particular, must ensure that they are adequately insured because so much can go wrong on their property.

Here are three reasons to persuade your clients that it is better to be safe than sorry.

1. Water and fire damage

Anything can happen when there are so many people in one place. In the worst-case scenario, anything can cause fires, flooding, and extensive property damage. Whether it’s a misplaced cigarette that causes $250,000 in damage or a guest who floods a hotel with 400,000 liters of water, these mishaps are only one mistake away.

2. Pool-related mishaps add up

Swimming pools and spas may be appealing to visitors, but they are also a source of injury and lawsuits. Disney was sued for $100,000 in 2022 after a woman claimed she was permanently injured while swimming in one of their pools.

3. Human Trafficking on Hotel Property

It’s not something anyone wants to think about, but it’s a widespread problem in the United States and around the world, and it frequently occurs in hotels. Hotels are not only seen as easy targets for human trafficking, but they also sometimes unknowingly hire these victims to work in their establishments.

Human trafficking is unquestionably heinous in and of itself. However, from an insurance standpoint, it is a huge potential problem that could expose the hotel to liability suits.

4. Insurance for Event Cancellation

As previously stated, many hotel events were canceled due to the pandemic. However, if your company finds itself in this situation, the right insurance can help. Some event cancellation policies have a variety of exclusions, so it’s critical to understand what your personal insurance policy says.

What Is the Cost of Hotel Insurance?

There is no single average price point you can quote your clients for something as broad and varied as hotel insurance. This will not stop them from asking, and it’s always helpful to give them some kind of answer before you can get a specific quote based on their specific circumstances.

Fortunately, you should be able to give them a ballpark figure based on some historical data and basic math. According to CBRE research, the average cost of hotel insurance in 2021 will be around 1.9% of operating revenue. If you want a more precise figure, CBRE has broken down the estimated cost of hotel insurance by hotel type, from limited service to resorts.

Conclusion

Many hotel businesses have been forced to make difficult decisions this year, such as halting development or abandoning planned projects for the time being. Although this sector of the hospitality industry appears to be at a standstill, steps can still be taken to prepare for their inevitable return to profitability. One of these steps is to ensure that your hotel insurance policy includes disaster protection.