Hotel Insurance: Liability, Programs, Costs & More
May 3, 2021
I stayed in a really old hotel last night. They sent me a wake-up letter. – Steven Wright, Canadian humorist
The hotel insurance market includes a wide range of lodging options that all need Hotel Insurance Programs. Before the pandemic, the lodging sector was a significant source of employment, with its 2.3 million ranks accounting for 1 in 25 jobs in the U.S. and adding $660 billion to U.S. GDP.
The hospitality sector was one of the first to feel the effects of COVID-19 and will be among the last to recover from its devastation. Leisure travel is picking up quicker than business use which is typically the more lucrative source of business for hotels.
Industry experts expect the recovery from lost jobs and revenue will take years to accomplish. The complexity for hotel industry management includes dealing with rising insurance costs from carriers hardening the market in reaction to the pandemic coupled with massive losses due to natural disasters.
What is Hotel Insurance & Who Needs It?
Hotel insurance is a broad term that encompasses many different types of lodging providers. The variety includes:
● Franchised hotels
● Company-owned hotels
● Resorts with Amenities
● Independently operated hotels
● Boutique hotels
● Destination resorts
● Private-label properties
Bed and Breakfast operations
The above types or lodging providers generally classified as one of the following:
● Select or Limited Service
Due to the complexity and diversity of hotel business models, many Hotel Insurance Programs target specific types and classes of hotels. An example from the Program Business directory is RSG National Specialty Programs. It has an exclusive Franchised Hotel Insurance Program. More details on it forthcoming in this guide to Hotel Insurance Programs.
Hotel insurance programs typically package multiple individual coverages into one policy. Within the policy, specific coverages address the custom insurance needs of the hotel insurance buyer.
The array of services hotels offer to their clientele creates numerous serious insurable risks that fall under liability insurance. Property damage insurance is the other primary category of protection found in hotel insurance programs. Restaurants, lounges, nightclubs, swimming pools, conference centers, employees, and guests present sizable potential risks that need insurance protection.
Types of Hotel Insurance
Hotel insurance is usually a package policy with coverage specific to the needs of individual hotels. A hotel insurance program will have one policy that bundles a group of individual coverages customized to meet a particular hotel's unique situation.
Because of a hotel's exposure to a comparatively high number of perils, hotel risk management requires an extensive list of coverages in their hotel insurance program portfolios. The necessary insurance varies depending on the type and class of the hotel and the services it offers. While not inclusive, the descriptions of the coverages below are those most often included in a hotel insurance program.
General Liability is also known as Commercial General Liability (CGL). Hotels deal with guests, visitors, employees, vendors, and suppliers that each pose liability risks to hotels for bodily injury or property damage claims which the CGL covers. Hotel liability insurance also includes providing legal fees and medical bills for injuries sustained by guests, visitors, and third parties while on the hotel property. General liability protection extends to provide legal defense for claims of reputational harm and advertising injury.
Commercial Property Insurance
Commercial Property helps to pay for damage due to fire, smoke, lightning, explosion, wind, hail, theft, vandalism, and more. Coverage includes the hotel's physical structures, equipment, furniture, signage, and other insurable property assets vital to its business. Depending on the hotel's location and other impinging factors, hotels should consider adding specific property insurance for earthquakes, coastal winds, wildfires, or landslides.
Guests entrust hotel and motel management to safeguard their possessions during the time of their stay. Innkeeper's Liability Insurance covers damages or losses to guest property and is a mandate by statute per state; a limit of $1,000 per guest is typical with an applicable aggregate limit.
Hotels that serve liquor need liquor liability insurance to protect against losses due to an intoxicated patron found at fault for causing property damages or bodily injuries to others. If the hotel operations include business activities that manufacture, distribute, sell, or serve alcoholic beverages, it is liable for customers who become intoxicated from its service. If the patron takes actions or causes an accident that results in bodily injury to others or property damage, a liquor liability policy will help pay legal defense and settlement fees.
Workers' Compensation is also well-known as Workers' Comp insurance. Nearly all states mandate for employers. It covers employees who suffer an injury while on the job without regard to fault. Workers' Comp will replace lost wages and provide medical benefits to employees. Hotels have a wide variety of employees, but most workers' compensation injuries occur in housekeeping operations. As part of the agreement to accept mandated coverage, employees give up their rights to sue their employer for negligence.
An Auto Liability policy, also known as a Commercial Auto policy, is required by statute in most states. A prime example is insuring the shuttle service used to transport guests is a necessity. The policy insures the hotel's vehicles with comprehensive, collision, uninsured/underinsured motorist, liability coverage, and possibly more coverages depending on the insured's needs. When a vehicle owned by the hotel is involved in an accident, a commercial auto liability will help make payments up to the policy's limits. Coverage includes payments for legal bills, medical expenses, and property damage for non-employee persons who suffer injuries and property damage from accidents caused by the hotelier's employees. Commercial auto is recommended or necessary when under such conditions as food delivery provided by a hotel's restaurant, when transporting equipment or prepared foods to event venues, and for errands by employees during work hours using a company vehicle.
All insurance policies have upper limits for the amount they will pay, which is necessary for hotel insurance carriers to maintain predictable premiums and profits. While most often adequate for typical situations, there are extraordinary possibilities for incidents that can exhaust the limits of a business liability policy. A shuttle bus full of hotel guests is involved in a severe accident, a large gathering of event attendees is stricken with foodborne illness are examples.
The lines that distinguish excess liability from umbrella insurance continue to blur. Traditionally, Umbrella insurance is broader in how its coverages apply to the policies that sit below it. There are complexities and policy language that the insured and agent should review carefully to avoid gaps that weren't clear to the insured when the policy is issued.
Umbrella insurance is available in $1,000,000 layers. A rule of thumb for how many layers are necessary to cover the business's assets is to match the liability limits to the property values of the hotel.
Additional Coverages for Hotel Insurance Program Consideration
● Business Interruption and Extra Expenses
● Employment Practices Liability
● Hotel Guest Relocation Services
● Event Cancellation Insurance
● Cyber Liability Coverage
● Equipment Breakdown Coverage
● Foodborne Illness Liability
● Premises Pollution Liability
● Crime Coverage
● Law and Ordinance
● Business Income from Dependent Properties
● Signs Coverage
Utility Interruption Coverage
Hotel Insurance Costs (and what factors affect the price)
Making a statement that pinpoints costs for hotel insurance is not possible due to the wide variances between the types and classes of hotels and motels. The following excerpt from a posting from May 2020 on the CBRE Hotels website is helpful and informative when considering the cost of hotel insurance:
In 2019, the properties in the sample averaged 170 rooms and achieved an occupancy of 74.4 percent and an average daily rate (ADR) of $174.96. During the year, insurance expenses averaged approximately 1.0 percent of total revenue, or $671 per available room (PAR).
Among the different property types, the cost of insurance is most expensive for resort hotels. During 2019, the resort properties averaged insurance payments of $1,889 PAR, or 1.3 percent of revenue. At the other end of the spectrum, insurance for extended-stay hotels averaged just $335 PAR. For limited-service hotels, insurance PAR averaged a relatively limited $470, but due to low revenue levels represented 1.6 percent of total revenue, the greatest percentage of all property types.
Best Hotel Insurance Programs
Agents seeking the best hotel insurance programs should consider finding providers with the expertise to match their needs. Look for providers whose level of experience, service, and markets provide them with expertise that will help them land prospective hotel insurance prospects. Often, a program business with a niche within the niche is the perfect solution. Such is the case with RSG National Specialty Programs. Its business model focuses on franchised hotels, a stable, lucrative market sector in the hotel insurance market.
Below is a summary of what RSG National Specialty Programs offers through its Franchised Hotel Insurance Program, which you can conveniently find in the ProgramBusiness.com Market Directory.
Package solution for Franchised Hotel Insurance Program with tailored hospitality extensions on one policy.
This program offers retail insurance agents access to monoline coverage options and an exclusive package solution on one policy for franchised hotels and motels. The following coverages can be quoted: General Liability and Property with tailored hospitality extensions and optional coverages such as Cyber Liability and Liquor Liability. Non-auditable policies are rated on the number of rooms.
● Competitive rates
● Customized forms
● Minimum premiums
● General Liability: $1,000
● Property: $2,500
Nationwide, excluding HI & TX
Franchised Hotel / Motel operations which may include:
● Full-service and limited-service hotels
● Fitness Centers
● Coastal property
Interior and exterior door risks
● Owned Premises
Property Damage to Rented Premises
● Cyber Liability
● Wake-Up Call
● Employee Benefits
● Hired and Non-Owned Auto Liability
● Business Personal Property
● Business Income – Actual Loss Sustained
Hotel Coverage Extensions
● Guest Property
● Employee Dishonesty
● Money and Securities – Inside and Outside
● Outdoor Property and Outdoor Signs
Other coverage extensions and higher limits are available
The description of this program is only a summary of available coverages. Existing policy language will dictate the scope of coverage in the event of a claim. Agents should read the complete policy form and any applicable endorsements for full terms and conditions and encourage their policyholders to do the same.