The COVID-19 pandemic has had terrible effects on the hotel insurance market in the U.S. Many of the go-to insurance companies for hotels have stopped quoting additional businesses, and some insurance companies have exited the industry completely.
This market shift has caused prices to increase, deductibles to increase, and coverage terms worsen, nearly across the board. And this occurred when hospitality revenue was already at an all-time low.
Here is what owners need to know about options for hotel insurance, requirements for coverage, and how to get the best deal in the market.
What is hotel insurance?
Hotel owners have substantial investments tied up in their property. They purchase insurance to protect their business from various forms of damage and litigation.
Property damage and lawsuits don't exclusively arise out of standard hotel operations, though. Many properties have additional areas of operations that oftentimes increase their risk, such as:
Special Event Facilities
Vehicles for Airport Transportation
Accidents do happen, and the hotel owner must decide how they want to address these risks. Hotel insurance coverage is a method of transferring certain risks to an insurance company, instead of the hotel having to bear all the risk itself.
Insurance policies can be customized to fit the risk profile of the hotel owners. For example, if the owner wants catastrophic coverage only, high liability and property deductibles can be added to the policy to significantly decrease the rate.
What insurance do hotels need?
As addressed above, each property has different activities that make its hotel insurance requirements unique. Some hotels have a golf course, and some don’t. Some hotels are large with luxury amenities, and some are smaller with only the essentials. All of these factors play into the type of hotel insurance coverage each property needs.
So, while there is no generic advice on exactly what you need, here are the most common forms of hotel insurance and why hotel owners purchase the coverage.
Commercial General Liability (All Hotels)
Commercial general liability insurance is the foundation upon which a hotel liability insurance program is built. We recommend this coverage for any hotel, no matter the size, location, or operations.
This policy covers bodily injury and property damage to third parties that occurs while on your premises. Because you have guests going in and out of the building, sleeping in rooms, exercising on gym equipment, and interacting with your employees, this is critical insurance coverage for hotels.
Commercial Property Insurance (All Hotels)
Due to the nature of a hotel business, a lot of capital and investments are tied up in real estate. A commercial property insurance policy is needed to protect the owner’s assets in the event of a catastrophe.
This policy can cover the buildings that you own, the property within those buildings, or even some property outside the buildings.
Be aware that flood and earthquake damage is typically excluded from hotel property insurance policies. If you operate in areas prone to this type of weather event, you need to ask your broker for to cover these events specifically.
For everything you need to know about how commercial property insurance works, visit our article, "Commercial Property Insurance: The Ultimate Guide."
Commercial Auto (Hotels With Owned Vehicles)
If your hotel owns any vehicles, you need a commercial auto insurance policy to cover the liability arising out of the vehicle's use and damage that occurs to the vehicle.
If you use the vehicles to transport guests, it is important that you purchase this policy with high limits of liability to protect the business from large lawsuits arising out of a potential car accident.
Equipment Breakdown (Most Hotels)
Hotels are usually large buildings, and large buildings come with expensive equipment to service those buildings. Equipment such as HVAC systems, security systems, walk-in freezers, and communications systems.
Equipment breakdown adds key extra coverage in the event that an unforeseen incident (e.g. power surge, sudden and accidental damage, etc.) impairs the expensive equipment that services your building.
Workers Compensation (Hotels With Employees)
Almost every hotel has employees that manage some function of the operation. Whether it is manning the front desk, cleaning the rooms, or running the restaurant, by law, you are responsible if any of these employees is injured while working for you.
A workers compensation policy addresses these legal obligations by paying for employee injuries and a portion of lost wages while the employee is unable to work.
Ultimately, the specific benefits provided in the workers compensation policy you purchase are not determined by the insurance company; the benefits are usually written in statutes of the state where your employees reside.
Cyber Liability (Medium to Large Hotels)
A cyber liability insurance policy offers protection from financial issues arising out of data breaches or cyber-attacks. Whether a cyber-attack shuts down your operations due to ransomware or your guests personal information is leaked as a result of an internal data breach, a cyber policy can be crafted to protect against most of these risks.
Garagekeepers & Non-Owned Liability (Hotels That Offer Valet Services)
If your hotel offers valet services (a hotel employee drives a guest’s vehicle and parks it in a private parking lot), you need insurance that covers the vehicle from damage, and also liability insurance for any accidents that happen while driving the vehicle.
Garagekeepers insurance covers the vehicle for damage while it is in your hotel’s care and control. This policy usually includes collision coverage (when one of your employees hits something) and comprehensive coverage (most other types of damage).
Non-owned liability insurance covers liability arising out of vehicles that you do not own. For example, if your employee was driving a guest's vehicle and hit someone in the parking lot, this would qualify as a non-owned liability insurance claim.
Liquor Liability (Hotels That Serve Alcohol)
If you operate a hotel restaurant or bar that serves alcohol, you need to insure your business for liquor liability (or dram shop liability).
Liquor liability coverage pays for certain damages that arise from selling, serving, or furnishing alcoholic beverages. A common liquor liability claim is one that involves your bartender overserving a patron, and that patron later getting in a car accident.
Although it might feel unfair as a hotel owner, liability from overserving patrons is law in many states. These dram shop lawsuits can also involve fatalities that can exceed the typical $1,000,000 limit. If you serve a significant amount of alcohol, we suggest making sure you have an excess liability policy that increases the limit to whatever you feel comfortable with.
Insurance Challenges For Hotel Owners
Hotel insurance is one of the most challenging industries to insure right now. The impacts of COVID-19, labor shortages affecting employee and guest safety, high vacancy rates, and increasing weather severity have propelled insurance companies to increase rates, implement stricter underwriting guidelines, and increase deductibles.
Specifically, hotels with these attributes are most affected:
Under 3 stars
Under 55% occupancy rates
Located near the ocean
Exterior room entrances
We can help
We have decades of experience helping hotel owners purchase quality insurance for their businesses. Not only do we have options for large and high-end hotels, but we can also assist smaller hotels that are challenged in the current market.
If you are a hotel owner looking for insurance, let us know by starting a quote online or giving us a call.