Insurance is the one topic nobody wants to talk about, but hoteliers should not avoid, as recent natural disasters have reminded us.
In the hotel business, there’s always plenty to worry about.
Of course, the big one is the state of the economy. If you bend the ear of any hotel owner or operator these days, they’ll be quick to tell you their number one concern is the economy. How long will it hold up? Will rates keep going up? Will occupancy hold the line?
But there’s one thing no one ever wants to talk about, and that’s insurance. No one that I’ve ever met wants to talk about insurance—and, to be honest with you, as an owner, I’ve been highly successful in avoiding it myself!
Now it might make your eyes glaze over a little bit, and it’s admittedly not much fun to think about, but that doesn’t mean it’s not important. And at a time when it feels like things both inside and outside of the industry are more uncertain than ever before, it’s not just worth talking about—it might actually be one of the most important things you can talk about with your management company.
We tend to think of insurance as a “rainy day” safeguard, but for more than a few brands and properties this year, it’s been coming down like cats and dogs. Ask owners and operators in the Houston area how important insurance is. Whether it’s because of the threat of hurricanes, fires, floods or other natural disasters, property insurance rates have gone up around 15% or so this year alone.
Which reinforces the fact that managing your insurance wisely isn’t just about protecting yourself in the event of a worst-case scenario. It’s also about saving money. There’s only so much you can do to boost revenue, but you can control expenses. And there’s no two ways about it: insurance is a significant expense. The more you can do to be smart and strategic with your insurance policies and practices, the more you can make that significant expense less painful for your bottom line.
So what can you do? What should you be thinking about? What are some considerations that you (as an owner) should be talking to your management company about to ensure that you are protecting your people and your properties while still making the most of a potential cost-saving opportunity?
The first and most important thing you can do is to make sure that the insurance program you select is industry appropriate, written with a top-rated company, and stands up to any brand and lender specifications. We procure a blanket general insurance program through our broker that covers every line of insurance and potential risks—from slip-and-falls, to auto, liability and property damage. Working through a broker enables us to procure the best possible options through several different insurance companies, and we are careful to make sure that individual hotels have excess liability policies with an extremely high limit.
Specifically, with respect to hurricanes, most policies have a higher deductible for named storms, where the deductible goes up to a higher amount based on a percentage of total insured value and may also have a higher minimum deductible. Hotels that are vulnerable to a high-impact weather even might want to weigh the potential benefit of “buying down” the policy named storm deductible. We consider the option of paying an extra premium for a separate policy that buys the deductible down.
Where to find savings
One place where you can start to trim the fat from your insurance expenses is by keeping losses to a minimum. The better job you can do in avoiding or limiting property damage (e.g. water damage from leaks) through sound maintenance and operations practices, the better you can keep down costs.
Another source of savings begins with an outstanding HR department, and steps you can take to limit employee liability actions. We are super responsive to unhappy employees, and we address any issues right away. We provide extensive workplace training and we have an employee hotline where employees can report questions or concerns.
Managing safety in your hotels is also important if you want to lower your premiums. Owners should be asking about what steps their management company is taking to manage safety exposure in their properties.
All of this can literally pay off for you when it comes time for policy renewals. Some of it is market-dependent, of course—and, in the insurance game, you will always be somewhat at the mercy of events and forces that are out of your control. But you can do a lot to negotiate and buy the best opportunity.
If you’ve been smart about managing risk, improving safety, keeping employees healthy and happy, and managing and protecting your properties appropriately, your insurance modifier will be trending downward—and the resulting savings can be significant. Just as an example, our recent renewals show an average 14% reduction in workers’ comp pricing, largely because of how well we are managing safety issues.
One emerging specialty area of insurance is protection against hacks or cybercrimes. Cybercrime policies cover costs associated with resolving a breach, including hiring digital forensics professionals and notifying guests whose information may have been exposed.
Pollution is another important consideration. When you buy a piece of real estate and/or take over a hotel, it’s almost impossible to know the entire history of the site. If there used to be a gas station, dry cleaner or other potentially hazardous operation on the property, a spill or chemical exposure could be a big problem for you. The right insurance policy will help pay for cleaning chemicals and other expenses that can occur in a hotel, like a hydraulic leak from an elevator.
Ultimately, the best management companies should be able to counsel owners on their options and alternatives and help them work through the decision-making process in a way that enables them to protect themselves and realize substantive and impactful bottom-line savings. And that is definitely something worth talking about.
Steve Van, president and CEO of Prism Hotels & Resorts, founded the Dallas-based company in 1983. He serves on a number of industry boards, including the Hilton Doubletree Hotel Owner’s Advisory Council, and also served on the Starwood Hotels Owner’s Advisory Council for the creation of Aloft Hotels. Since 2008, he has been a founding director of AHMSA, a nonprofit based in Bogota, Columbia, that teached internal refugees entrepreneurial skills to lift their families out of poverty. Among many other accolades, he was the youngest director of NATO’s U.S. Arm, the Atlantic Treaty Assembly, and was presented with the Vincentian Ethics Scholar Award in 2006 in recognition of his valuable contributions in fostering business ethics research. He also co-founded the Texas Lyceum Association.
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