Common Risks for Hospitality Businesses and Recommended Insurance Coverage
Any homeowner knows that, when you open your home to guests, you take on certain risks. Your guests could break a priceless vase or leave a door unlocked and compromise your home’s security. They could get sick eating your famous chili or trip on a porch step and break a hip. While these risks do exist, you probably know the people you invite into your home, and if they’re friends or family, you may not have to worry too much about the potential for lawsuits. Guests may even offer to help pay for expenses that were their fault.
Hotel owners and managers understand that these same sorts of risks and more are very real threats in the hospitality industry and that, when you’re serving strangers, you can expect that some guests will take legal action against your business or cost you dearly in other ways. It isn’t just guests that open up your business to risks. As with any business, you also take on risks regarding your employees. There are also risks that threaten any sort of property, including your building and commercial vehicles.
In this post, we’ll talk about the risks facing the hospitality industry and what types of insurance coverage can help protect hotels and motels from these risks. With the proper insurance coverage, a business can be prepared for any scenario and can deliver excellent service with the peace of mind that they’re protected, no matter what.
Common Risks for Hospitality Businesses
First, it’s necessary to understand the sorts of risks to be prepared for — especially those that are unique to the hospitality industry. Here are five of the top risks in the hotel industry:
1. Property Damage
Property damage is a wide umbrella. Here are a few examples of property damage that could affect a hotel:
- A natural disaster or severe weather event could damage your building.
- You could experience a kitchen fire that damages parts of the building and equipment.
- Guests could break items in their rooms or other parts of the building.
- A housekeeper could damage an item that belongs to a guest while cleaning their room.
The possibilities for property damage are nearly endless. Just consider the assets your hotel has in the form of your building and everything inside it. When these assets are lost or damaged, replacing them can be costly.
Crime is also a concern for hotels, as it is for nearly every business. In the hospitality industry, theft is the most commonly experienced crime, and it can cost your business substantially over time. Guests can steal items, such as furniture, decor, towels or appliances, from their rooms. Even if they only take small items, the cost to replace these items can add up.
On the more extreme end, you could experience a burglary from a stranger, or you could have an employee who steals from your business. Property losses due to theft can be considered a type of property damage, but it’s a common enough risk to hospitality businesses that it deserves its own category and, as we’ll see, its own insurance coverage.
Injuries can happen anywhere, and your hotel is no exception. The bad news is that injuries can result in medical costs for the person who is hurt and expensive lawsuits for your business. One common scenario is when an employee is injured on the job. A kitchen worker could receive a severe burn, for example. A 2010 study found that room cleaning can be especially hazardous. Housekeepers in the study experienced 7.9 injuries per 100 worker-years.
Guests can also be injured at your hotel. For example, a guest could slip on a freshly mopped floor and break a bone. When one of your employees is injured on the job, you will be responsible for providing them with coverage to pay for time off to recover and any medical costs related to the injury. When a guest is injured, they could sue you for damages.
4. Food Contamination and Spoilage
Whether it’s a continental breakfast, a five-star restaurant or room service, serving food is a common way for hotels and motels to show their guests hospitality and add to their profits. Unfortunately, food service comes with some real risks. Infections and illnesses like salmonella, E. coli or norovirus can originate from contaminated food. If a guest becomes sick from consuming contaminated food at your establishment, they could sue for bodily harm and any possible medical costs related to their illness.
Another concern related to food is the financial hit you could take if a power outage or appliance outage causes food to spoil. The ingredients you purchase to cook with are financial assets, and losing them can harm your bottom line.
5. Alcohol-Related Liabilities
As with food, many hotels also serve alcohol. You may serve alcohol in your restaurant or a bar. For any business that sells alcohol, there are some liability concerns. For example, if you sell alcohol to anyone below age 21, you become liable under New York law for any injuries that young person incurs due to being intoxicated. It doesn’t stop there, either. You are also liable for injuries a person of legal drinking age experiences if you sold them alcohol after they were already intoxicated.
In addition to these direct risks from alcohol, intoxicated guests present other risks, like damaging your property or disturbing other guests. They can even pose a risk to your staff if their behavior gets out of control.
The five risk categories above are by no means comprehensive. There are many business risks in the hospitality industry — too many to record in this brief post. You may experience liability risks from making mistakes and upsetting a guest, for example. The hospitality business is all about people, and any time people interact, there’s a possibility for misunderstandings and mishaps to take place.
People certainly aren’t the only problem. As technology becomes more integrated into the way the hospitality industry does business, this can open your business up to new risks. Cyber threats are a concern for hotels that have guests’ personal information in their online databases.
If you’re starting to feel nervous about the many risks your hospitality businesses may encounter, don’t worry. Next, we’re going to look at how you can protect yourself.
Recommended Types of Insurance Coverage for the Hospitality Industry
So, how can your hospitality business protect itself from the many risks that threaten to derail your success? In short, the answer is to have thorough insurance coverage. Knowing you’ve assessed your company’s risks and obtained insurance coverage to account for all of these risks will give you peace of mind and confidence that your business will continue to thrive, no matter what unfortunate scenarios you may have to face.
There are a few basic types of insurance hotels need to comply with the law, and then there are additional insurance policies hotels should have to protect themselves more fully.
Hotel Insurance Requirements
The insurance coverage legally required for hotels is common to all businesses, so it doesn’t get at the unique risks facing the hospitality industry. These required policies include:
- Workers’ Compensation: All businesses with employees are legally required by federal law to have workers’ compensation insurance. This type of insurance provides coverage for work-related injuries or illnesses your employees may experience. Their medical costs and paid leave are covered, and you don’t have to worry about them suing your business.
- Unemployment Insurance: Unemployment insurance provides benefits to qualifying unemployed people. It is federally mandated but included as part of your state taxes. This means you don’t actually have to purchase an unemployment insurance policy. You’ll automatically pay into the joint state-federal program when you pay your taxes.
- Medical Insurance: Medical insurance protects you and your employees from potentially high medical costs from injuries or illnesses. Currently, businesses with more than 50 full-time employees are required by federal law to provide their staff with an employer-subsidized health insurance policy.
- Disability Insurance: If a person becomes disabled off-the-job and can’t perform their work duties, this insurance coverage will give them cash benefits for a time while they cannot work. Disability insurance is not federally mandated, but some states, including New York, require it.
- Commercial Auto Insurance: Just as you’re legally required to have a minimum level of insurance for your own vehicle, if your hotel has any business vehicles, such as shuttle vans, you must have commercial auto insurance. In New York, the minimum amounts of coverage required for commercial vehicles are the same as for personal vehicles.
Recommended Coverage for Hotels
So, we’ve looked at the legal requirements, but that list doesn’t fully answer the question, “What kind of insurance does a motel need?” This is because, as we’ve seen, the hospitality industry is exposed to many risks which these legally-mandated insurance policies won’t necessarily help with. Here are some of our recommended types of insurance coverage to help to protect your hotel or motel:
- Business Interruption: This is a general type of insurance for businesses of all kinds. It provides you with coverage if you have to close your hotel temporarily as the result of a covered scenario. The coverage will allow you to pay your employees and other expenses.
- Commercial Property: Commercial property insurance covers a wide range of sources of property damage, such as vandalism, fire and more. Not all policies are the same, so make sure you understand what your commercial property policy covers. Supplemental insurance policies can protect your property from otherwise uncovered events.
- Guest’s Property Coverage: While commercial property insurance covers the property your business owns, it doesn’t cover the property your guests bring with them. There are two types of guest’s property coverage you can get. One protects property a guest puts inside a safe deposit box at your hotel, and the other protects you from damaging or losing a guest’s property.
- Specific Peril: If you fear your hotel could suffer damages from a natural disaster based on your location, you may want to consider getting a specific peril policy. For example, you may want flood insurance to protect yourself if your hotel’s location is susceptible to flooding, or you may want to protect yourself from earthquakes if you live near a fault line.
- Commercial Crime: While guests committing theft will likely be included in your commercial property insurance, that policy probably won’t cover theft from your employees. Commercial crime insurance can protect you financially from your staff stealing or committing other unlawful acts in association with your business.
- Food Spoilage: When you experience a power outage or your fridge or freezer goes out, rather than taking a major financial hit as you watch large amounts of food spoil, food spoilage insurance coverage can give you the cash benefits you need to compensate for the lost food. This is an essential policy for restaurant owners, but it’s also helpful for any business serving food.
- Liquor Liability: Liquor liability coverage can help cover the costs you are liable for if a customer you wrongfully served alcohol to gets into trouble and experiences an injury or hurts someone else. Some states require this type of coverage, but even if it’s not necessary in your state, it’s wise to consider purchasing this policy for your hospitality business.
- Hospitality Services Errors and Omissions: No matter how well-trained your staff is, the occasional human error is an inevitable part of any business. When an error affects guests, it could mean a sudden financial burden. Hospitality services errors and omissions coverage is designed specifically for the hospitality industry and covers errors like double-booking a ballroom, for example.
- Cyber Liability: If a cybercriminal hacks into your database of guest information, they could gain access to personal and sensitive information, such as guests’ home addresses or credit card numbers. If guests are put at risk, your business could be held responsible. Cyber liability coverage gives you financial protection for this scenario.
- Equipment Breakdown: If a critical piece of equipment in your hotel goes out, it could cause a major disruption for you and possibly for your guests. For example, if a computer system, elevator or air conditioning stops working, you’ll need to fix it fast. Equipment breakdown coverage covers the cost to repair equipment that breaks down so it doesn’t cause a financial burden.
- Utility Interruption: A similar type of coverage is utility interruption coverage. This policy covers the potentially high cost of dealing with a utility outage. For instance, if you lose power or running water for a period of time, you may need to close your hotel and help guests find different accommodations.
- General Liability: This general insurance coverage is helpful for all types of businesses. It is a sort of catch-all for liability costs, such as medical bills or lawsuits, that aren’t covered by the other policies you have. If you’re worried there may be gaps in your coverage, a general liability insurance policy can help to cover those gaps.
Kokkoris Insurance Services — Your Trusted Hospitality Insurance Company
At Kokkoris Insurance Services, we understand how important insurance is to the hospitality industry. We also understand that, while general recommendations can be helpful, no two hospitality businesses are exactly alike. Your hotel, motel or other hospitality business may be prone to unique risks that warrant other insurance policies, or you may not need some of the policies we discussed.
Our dedicated service representatives at Kokkoris are committed to learning about your business and helping you find the best coverage to meet all your needs. To learn more or to get an estimate from us, call us today at 718-728-0606 or contact us online. We’re here to help you enjoy peace of mind, knowing you’re well-prepared for any challenging