As if the everyday challenges of operating a hotel aren't enough to keep a GM popping antacids on an hourly basis, dozens of other concerns are sure to keep one tossing in bed at night. First are your run-of-the-mill hotel worries: fire, theft, workplace violence, slips and falls, food poisoning, canceled events, water damage, mold. And then there's the slew of potentially catastrophic events to ponder: hurricanes and other weather events, avian flu, and terrorism acts, among others. It's enough to make one's head spin, or perhaps start drinking heavily.
If nothing else, the recent Hurricanes Katrina, Rita and Wilma have brought into sharp focus the perils of inadequate insurance coverage and the need for carefully considered risk management.
Which begs the question: How do you, one, prevent or prepare for such events; and two, adequately cover your property from financial/liability loss in case one should occur? (While there are other ways to finance risk outside of insurance, this story is limited to that option.)
Compounding the issue are insurance premiums that have become one of the fastest growing expenses for U.S. hotel owners. According to a study by PKF Hospitality Research, payments made by hotel owners for general liability and property insurance have more than doubled since 1999. These costs are only predicted to rise in the near future as carriers work to absorb and respond to rising numbers of claims.
For hoteliers, risk management is all about preparation and loss prevention, adequate coverage and finding the proper balance between costs and benefits. We recently spoke with two experts in hospitality casualty issues from Fireman's Fund Insurance Company: Sue Miller, vice president of agribusiness and hospitality and John Braschi, product director. While they might not totally calm your fears, they will offer tips, and some solid advice and suggest resources to better prepare your operation.
KNOW YOUR CARRIER
Most hotel operators, particularly those associated with smaller or economy and mid-segment properties go through an insurance broker when choosing policies and coverage for their properties. These professionals are well versed in the complexities of coverage and the vast array of choices available. More upscale and particularly large properties will usually qualify the carrier themselves.
“Brokers are independent business people who can sell you a variety of carriers so you're getting a choice of carriers your broker feels is best suited for your particular policy,” says Braschi. “The broker qualifies that insurer based on the quality of claim service, the quality of coverage and the financial condition of the company.”
Still, no matter the size of the hotel, it's wise to do some homework and carefully check out the history and qualifications of a potential carrier. First, check out the financials. The major players in the industry are closely monitored by industry ratings organizations like Standard & Poors and Moodys. Often, the insurance companies provide this information on their web sites.
“When a hotel or other claimant experiences a large loss in the tens of millions of dollars, an insurance company must be prepared to pay that amount tomorrow, in cash,” says Miller. “That's why it's so important to choose a company that can handle that kind of payout.”
Adds Braschi: I'm afraid that over the next six months we'll see some failures of insurance companies in the South. That's worrisome. For example, New Orleans has been a very difficult market to provide insurance in and these companies that have provided that insurance are going to take it on the chin royally and they may not be around for the long term.”
Another critical consideration, says Braschi, is a carrier's experience in a particular industry: “Does this company have a long-term commitment to my industry? Does it provide special coverages and special services and does it provide the kind of information that needs to be available to the hotelier in the very fast-paced, very busy operational environment hoteliers works in?
“Specialization is important. Also, the point of contact — are they responsive? How do they perform when it comes to adjusting a claim?” This kind of information can often be gleaned through references and recommendations.
“We have partners — engineers, and loss control people — who help us evaluate risk and control and mitigate and prevent risk,” continues Braschi. “Then we have claims people who have to be worldly enough and expert enough in their craft and are empowered to make decisions. There's a value equation of quality plus price equals what I need. For a small motel owner, the need is a lot less than that of a five-star hotel, which has a much broader range of needs and legal liabilities.”
It's important that a carrier really know the hospitality industry, says Miller. “You want a carrier that's up on the issues and trends, with experience and tenure.”
It's also important to have an agent who understands your particular operation and its associated needs. All the better if they're located in your town or region and know the market. The small motel operator has far fewer insurance needs than a five-star hotel, which may face a broad range of insurable factors and legal liability.
As a service industry, hotels, when looking at purchasing services from another service industry, like insurance, are looking for some key things, says Miller: “They want to be sure their policy is accurate, that it includes anything they could have possibly thought of, and beyond. It's important that the loss control folks are knowledgeable, and that their recommendations make sense — they're logical. And, if I have a loss, how responsive are they? What services are provided? What do I get back? What kind of changes do I need to make in the future for that policy?”
Adds Braschi: “You want to have the right-size product in terms of pricing and coverage crafted to the hotel — and that level of crafting means you're not overpaying and you're buying only what you needs — it's an important element of the insurance buying decision.”
CRISIS MANAGEMENT COVERAGE
The insurance industry continues to carefully track trends in the hospitality industry and create new products to satisfy coverage needs. For an example of how specialized these solutions can be, Fireman's Fund recently introduced a crisis management coverage that pays for professional public relations counsel to help businesses overcome disaster and preserve their reputation, as well as cover expenses required to get back to normal operations as soon as possible.
Designed for small-to-medium-sized businesses, coverage limits are expected to be in the $25,000 to $100,000 range. A primary feature in the policy is coverage for post-event expenses for an event such as workplace violence. The policy covers medical and funeral expenses, psychological counseling for employees and travel expenses for people injured in the crisis, who witnessed the crisis or work in the location where the crises occurred.
A good insurer will often provide a variety of resources to help your business operate safely — industry-specific loss prevention information, outsourcing and preferred vendors information, industry lines, newsletters and website access/info. Take advantage of these resources to get the most value from your risk management program.
The bigger hotel companies will often have resident safety and security and other corporate-level risk managers who advise individual properties in loss prevention and liability issues. Insurers, too, will often provide, free of charge, loss consultants who visit a property and guide management in specific steps that can be taken to prevent loss and liability. “These consultants can advise on things like how to prevent Legionnaire's disease, how to prevent and cure indoor air quality problems, or how to prevent mold growth,” says Braschi. “They can go into a kitchen and spot health department violations and suggest ways to avoid fires. Never mind the basics like slips and falls and workers' compensation issues — these are the kinds of things loss control managers can help a hotelier with.”
Hotel managers may also be able to go online to an insurer's website for other safety and security tips. Fireman's Fund keeps its fingers on the pulse of breaking news, like hurricanes, and will email blast clients with tips on storm preparation and other relevant safety information. It's all about expecting the unexpected, and planning for it.
THE BIG IDEAS
The hospitality industry faces unique challenges in a multitude of areas and operations. Check out the concerns below and consider how important they are to your business and whether they might rate protection or coverage. Some are more obvious than others.
- Protection of tangible assets (i.e. buildings, equipment)
- Protecting your business reputation
- Crisis readiness, response and communication, including terrorism
- Closing of a nearby venue or tourist attraction
- Airline or other transportation interruption
- Protecting guest data and personal property
- Cybercrime (e.g. interruption in reservations systems)
- Transmission of communicable diseases to guests or employees
- Employee training
- Staffing, including hiring, retention and immigration issues
- Back-to-work programs for injured employees
- Guest and employee safety and security
- Workers' compensation costs
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