Trouble can often be lurking for hotels. The transient nature of the business creates a great deal of unforeseen risks. Jackie Collins, area vice president at Arthur J. Gallagher Risk Management Services Inc., has seen how these dangers can cause havoc for hotels. While she believes you can never be totally prepared, especially when it comes to natural disasters, hoteliers create their greatest risks by not having sufficient risk management plans and policies in place. Collins discussed hotel risk management and insurance with Lodging Editor Len Vermillion.
1. Len Vermillion: Why is it important for hotels to have insurance and risk management in place?
Jackie Collins: Whether you are a hotel owner, operator, or management company, there are many unique exposures that are faced by the hospitality industry. Some of the areas subject to loss include, but are not limited to, third-party bodily injury and/or property damage, employee bodily injury, and first-party property damage.
Third-party bodily injury includes bodily injury to guests or non-guests. Losses often stem from slips and falls, assault and battery, sexual abuse and molestation, carbon monoxide poisoning, Legionella bacteria, food-borne illnesses, bed bugs, swimming pool accidents, over-serving alcohol, automobile accidents, and the unintentional release of a guest’s private information. Third-party property damage includes damage to guests’ or non-guests’ property, such as laptops, jewelry, and other items.
Employee bodily injury is a large expense to the hotel industry. The housekeeping department generally incurs the majority of all employee-related claims. Many injuries stem from back and shoulder injuries due to lifting, pulling, straining, and falling, blood-borne illnesses due to contact with contaminated items, and respiratory illnesses due to chemical exposure.
First-party property damage includes loss to the hotel owner’s, operator’s and/or management company’s property. Items exposed to loss include buildings, contents, and loss of income. As many hotels are located in catastrophe-prone areas, it is also important to note that items outside of the building are also subject to loss. These items include swimming pools, paved surfaces, sidewalks, and landscaping.
Whether you choose to avoid certain aspects of the industry, retain a portion of the loss, or fully insure, a hotel company must plan ahead. The danger of not having an insurance and risk management program in place could determine a hotel company’s ability to survive.
2. LV: What types of policies are available for hotels?
JC: There are a number of policies available to hotel companies. Using the types of exposures and losses referenced earlier, note examples of policies recommended for hotel companies.
General liability, innkeepers liability, liquor liability, automobile liability, and garagekeepers liability policies are designed to protect hotel companies from exposures relating to third-party bodily injury and/or property damage.
Workers compensation policies, which include employers liability coverage, are designed to meet statutory requirements and provide protection for losses involving employee bodily injury.
Property, automobile physical damage, and crime including employee dishonesty, computer fraud, and funds transfer fraud, are policies designed to provide protection for first-party property losses.
Hotel companies are also faced with executive protection exposures in which employment practices liability, fiduciary
liability, and directors and officers liability policies are available. Management professional liability policies are available to hotel management companies should they make errors or omissions while managing property for others.
Security and privacy liability policies are available in order to protect hotel companies from losses due to privacy violations. Not only does this coverage protect the hotel company from guest claims, it also protects the hotel company from employee claims due to the release of the employee’s private information.
Pollution liability policies provide protection for your legal liability stemming from the spill of pollutants.
3. LV: How affordable is risk management, particularly for small and independent hotels, and how can they ensure they have enough coverage?
JC: In comparison to other industry classifications, the premiums for hotel companies are generally rather favorable; however, there are a number of factors that must be taken into consideration when determining the premium for a hotel operation. These factors include experience, annual revenue, annual payroll, limits purchased, location, construction, and age of all buildings as well as any updates performed, type of operation, type and amount of current losses, and the details of the hotel company’s current safety and loss prevention plans.
4. LV: Can hotels be prepared for unforeseen incidents like natural disasters that lead to ensuing catastrophes, such as what recently happened in Japan?
JC: To some degree, yes; however, it is not possible without proper insurance and risk management programs in place. Some of the exposures are addressed by purchasing adequate insurance coverage; however, other risk management tools must be used as well. A few items to consider include: buildings should be built to the most recent code requirements and evacuation and contingency plans should be in place.
As part of the insurance and risk management program, hotel companies should develop relationships with key firms. They should develop relationships with a remediation firm and a construction manager that will assist in reopening their hotel as soon after the event as possible. They should also have a relationship with a business interruption forensic accountant that will assist in assembling their claim in order to expedite claim payments. Lastly, insurance brokers play an integral role in designing the best program.