Hotel Insurance in Detail

20/06/2013 -- Mary Simpson
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Hotel, guest house and B&B insurance is made up of a number of policy options including:

  • Employers Liability Insurance
  • Public Liability Insurance
  • Products Liability insurance
  • Buildings Insurance
  • Contents Insurance
  • Business Interruption Insurance
  • Money Insurance
  • Books Debt Insurance
  • Trade Credit Insurance
  • Engineering Insurance
  • Glass and Sign Insurance
  • Legal Expenses Insurance
  • Goods in Transit insurance
  • Employee Theft Insurance

Employers Liability Insurance

Employer liability insurance is compulsory under The Employers Liability (Compulsory Insurance) Act 1969 if you employ anyone outside your immediate family.

It covers you against claims from staff who fall ill, are injured or die as a result of their work. The premium is based on the number of staff you employ.

Failure to meet the requirements of The Employers' Liability (Compulsory Insurance) Act 1969 can result in a daily fine of up to £2,500.

The minimum cover for employers' liability insurance is £5 million, but most insurers provide cover up to £10m.

The cost of employer liability insurance depends on the size of your payroll.

You can reduce premiums by carrying out a regular risk assessment of the business, having a clear health and safety policy and making sure equipment is regularly serviced.

Accidents

Statistics show that the main causes of accidents in the hotel industry are slips or trips, mostly in the kitchen and restaurant areas.

The kitchen is one of the most dangerous places. As you'd expect, the highest casualties are among catering assistants, chefs, waiters and bar staff, with slips and trips making up over half of the major injuries to employees.

Stopping slips happening in the first place will save you money with fewer claims against the business.

Insurers will be impressed if you have robust systems for preventing slips and trips.

To cut claims:

  • Carry out regular risk assessment on lighting and staircases (especially to cellars) and check floors are safe and free from trip hazards.
  • Keep staff informed and trained in prevention of accidents.
  • Put in procedures to swiftly tackle spillages and erect warning signs when cleaning up.
  • Ensure outside maintenance firms have their own liability cover in place and ask to see their Health & Safety policy before allowing them on your premises.
  • Make sure employees are trained and competent to work in a safe manner when carrying out maintenance tasks.

Kitchen horror

The Health & Safety Executive (HSE) cites the case of a commis chef in a hotel kitchen who plunged his arm into boiling hot oil when he reached out to steady himself after slipping on a wet floor.

He suffered serious burns to his hand, arm and face, and had to undergo surgery. The poor man was off work for five months. Yet the accident was entirely avoidable.

The hotel's monthly slip and trips risk assessment had already highlighted a problem with water pooling around the dishwasher, but management hadn't done anything about it.

The company was fined £14,000 with costs of £2,000.

Manual handling

Handling, lifting or carrying makes up around 15% of major injuries in the hotel and catering sector.

Employees most at risk include cleaners and staff working in food preparation and laundry areas.

Make sure all staff undergo manual handling training to prevent injury.

Dermatitis

Dermatitis is a major cause of ill health among cooks and kitchen assistants.

The main causes are contact with foods and flours, as well as soaps and cleaning agents because of the frequent hand washing required.

Yet dermatitis can easily be prevented. The steps needed to protect staff from contracting dermatitis are simple to put into operation, so there really is no excuse if you do find yourself being sued by a member of staff.

Risks assessments aren't difficult to carry out, but they are vital to protect your workers and your business from lawsuits - as well as complying with the law.

The Health & Safety Executive has a simple guide on how to carry out a risk assessment.

Helpful free and priced leaflets are available from the HSE and can be downloaded from their website.

Asbestos

Asbestos is banned in the UK, but it's still present in many buildings erected or redeveloped before the year 2000. It's the UK's largest cause of work-related fatalities, with over 4,000 deaths each year due to past exposure.

In older hotels, guesthouses and B&Bs, it can be disturbed unknowingly and have long-term health implications for people who work in the vicinity.

It's your duty to manage any asbestos in your premises. Keep a record of where it is and its condition.

Make people who work on the premises aware that it may be present, especially maintenance workers.

Public Liability Insurance

If the general public injure themselves or fall ill as a result of your negligence, or property is damaged because of your business operations, you could be sued for millions.

  • Indoors, visitors can fall and injure themselves in public areas such as restaurants and bars because of worn carpets or slippery floors.
  • Outdoors, a loose paving stone could cause someone to fall and injure themselves.
  • Renovation work could easily adversely affect a neighbouring property.

Public Liability Insurance covers these types of claim and usually any legal expenses involved.

Products Liability insurance

Most likely you'll supply portable electrical equipment and other goods for your guests' comfort, eg kettle for tea and coffee-making facilities, hairdryer, soaps, shampoos, etc.

You may even package products such as guest soap with your own label, giving the impression that the products are produced by you.

Larger hotels will offer swimming, gym and spa facilities and have health and beauty salons on site.

Even although you don't actually manufacture any of the products used to deliver services to guests, you could be sued for damage or injury caused by defects in their design or manufacture.

Another example of a situation where a claim might arise is if you cause food poisoning as a result of using ingredients that are past their use by date.

Under the Consumer Protection Act 1987, it's a criminal offence to supply defective consumer goods.

You could be held legally responsible and have to compensate your customer in the form of a large settlement.

Products liability insurance can cover your legal liability to pay damages as a result of defective goods and services.

The standard level of cover is £2m, but you can increase this.

Buildings Insurance

If you own the hotel, guest house or B&B, you need buildings insurance to cover the cost of the full rebuilding of the premises - not just the market value.

You should also cover the cost of professional fees (eg architect, surveyor) and the cost of demolition and site clearance. The premium is based on the value of the property.

Standard cover protects against fire, lightning and explosion of domestic gas and boilers but a more comprehensive option is "all risks" to include accidental damage or loss not specifically excluded in a standard policy.

So - depending on your attitude to risk and your location - you may want to cover your business property for explosion, riot, malicious damage, storm, flood, impact by aircraft, road and rail vehicles, escape of water from tanks or pipes and sprinkler leakage.

If you lease the accommodation premecis, then the owners are responsible. You have every right to check their buildings insurance policy to ensure it's adequate.

The cost of the insurance depends on several factors - the type of building, distance from emergency services (eg fire brigade), your attitude to risk management and any previous claims' history.

Contents Insurance

What if your hotel's contents were destroyed by flood or fire? You could be left with the shell of your expensively furnished accommodation. It's wise to insure valuable contents such as stock, furniture, fixtures and fittings and equipment separately from the building. This provides additional cover and helps you get your business up and running again with minimal outlay.

Poor storage of stock or contents can often invalidate a policy - if they are stored in a cellar, say, where it's liable to damp. Most insurers insist stock should be placed on racks at least 150mm above floor level.

Insure your contents for cost price with no mark-up. Make sure the sum insured is adequate, ie, the full replacement cost. Don't under insure contents - it's a false economy because you'll only get back a proportion of its real value.

Similarly, don't over insure - you'll pay a higher premium than you need to.

It may be wise to increase the sum insured - eg by 25% or 50% - to cover higher levels of contents and stock during busy trading times, eg Christmastime/Easter.

Check that there's also cover for property in transit and at exhibitions or outdoor catering events.

You can insure business equipment on a new for old or indemnity basis, or depreciation (ie wear and tear is taken into account when settling claims).

Business Interruption Insurance

Don't confuse Business Interruption insurance with Buildings and Contents cover.

Sometimes called Property insurance, Buildings and Contents cover will meet the cost of repairing damage to a building or replacing stolen or damaged equipment and stock. Buildings and Contents won't cover you for loss of business income or pay any of the outgoings needed to sort the problem.

If the damage and disruption is serious it will take time to get the business back to normal.

Without Business Interruption cover, your business could face real financial difficulties.

AXA indicates that 80% of businesses go bankrupt after a serious fire, this is why Business Interruption cover is included as standard.

Also known as Loss of Profits or Consequential Loss, standard Business Interruption insurance covers the risk of fire, lightning, explosion and hazards such as storm, flood, malicious damage and theft.

You can claim if any of these insured risks occur at your hotel and affect your turnover.

But what if one of these risks strikes at one of your main suppliers' premises, or public utility providers (eg water, gas, electricity, telecoms)?

The effect on your accommodation business in the high season could be horrendous. You can extend cover to include this.

Premises in rural areas might want cover for business interruption in the event of an outbreak of a notifiable disease - avian flu, say - on a nearby farm which could seriously harm bookings.

Hotel owners should also think about covering loss of income due to closure following an outbreak of:

  • food poisoning
  • pest infestation (eg rats)
  • substandard sanitation
Hoteliers can even insure their business against the damaging effects of murder or suicide on the premises.

Some insurers will also cover loss of business income as a result of:

  • bomb scares
  • oil or chemical pollution
  • damage at a local attraction (eg leisure centre or shopping complex)

Business interruption cover can be a lifeline for your business because it can pay for things like rent and wages for employees that remain and redundancy payments to staff you have to let go.

You can also cover loss of income and meet extra costs such as accountants' fees, cleaning costs and hiring temporary facilities.

You can opt for a 1 or 3-year term policy, but it's harder to prove loss of earnings over a 1-year period. The premium is based on an estimate of your gross annual profit.

The duration of the cover - maximum indemnity period in insurance speak - is usually a year or more and will tide you over until you can trade at the same level as before the incident.

Business interruption cover really does make sense and is probably one of the most valuable types of insurance covers to buy.

Money Insurance

If you keep cash on the hotel or bed and breakfast premises, you need to insure it against theft. You can add on theft by an employee, sometimes called 'Fidelity Guarantee' or 'Employee Dishonesty.'

Cover should include what insurers describe as 'non-negotiable' money - crossed cheques, bankers drafts, postal orders etc, unused units in franking machines & credit company sales vouchers.

Ensure that business money is covered during transit (eg when taking money to or from your bank) and that you have cover for bodily injury to you/your employees following an assault or attempted assault.

Books Debt insurance

Sometimes referred to as "Loss of accounts receivable," this protects your accommodation business against loss of money following theft of books of account or their accidental damage by, for example, fire or flood.

Books Debt insurance covers the cost of calculating how much customers owe and the amount of any unpaid debts that can't be followed up due to loss or damage to your accounts.

Trade Credit Insurance

What if one of your biggest customers went bankrupt or delayed paying their bills? You could find your cashflow a problem. Trade Credit insurance covers against the risk of bad debts and provides you with working capital to run the business.

Many insurers provide support services such as credit assessment/debt collection management.

Engineering Insurance

Sudden mechanical or electrical breakdown of machinery, such as hotel lifts or computer equipment, could spell ruin. This type of cover will help meet the costs of repair or replacement.

As always, check the small print though. Programming or operator errors, or virus attacks on your computer, could be excluded.

Mechanical equipment such as lifts and lifting machinery, boilers, etc., must be regularly maintained and inspected. If not the policy will be void.

Glass and Sign Insurance

You need this type of insurance to meet the cost of replacing expensive glass or signage as a result of accidental or malicious damage.

It's not always covered under standard premises insurance policies. Always look at the small print. Neon signs are often excluded.

Legal Expenses Insurance

Top Tips

  • If you know an employment dispute is brewing and you decide to take out insurance to cover legal costs (commercial legal protection), be aware that most insurers have clauses that debar claims where the cause of action arises within, say, the first 90 days of taking out the policy.
  • Similarly some insurers won't entertain a claim if an employee has been given an oral or a written warning in the 180 days immediately before the start date of the policy.
  • Ditto redundancy issues arising within the first 180 days of cover.
  • Never take on staff without references - any claim could be rejected because you failed to take reasonable care when selecting employees.

You almost certainly employ staff so there is every possibility you could find yourself being taken to court over employment matters, eg, a claim for unfair dismissal or racial or sexual discrimination.

Or you may want to take out court action to recover bad debts, resolve a dispute with a customer or appeal against a loss of liquor license.

But taking out - or defending - a legal action can cost a small fortune and place huge financial strain on the business finances.

Legal expenses insurance, sometimes called Commercial Legal Protection, will pay for legal costs such as solicitors' fees and expenses, the cost of barristers, court costs and opponent's costs if the judgement goes against you in civil cases.

The policy should also cover the cost of employing accountants and lawyers to defend your rights (eg if your business is under investigation for tax or VAT).

Check the cover limit per claim and the maximum limit allowed for employment compensation awards - particularly important if you employ a lot of staff.

As always, check the small print.

Goods in Transit insurance

If you need to cover goods against loss or damage while in your vehicle or when being sent via carrier, e.g. transfer of furniture or linen, food or equipment around the hotel group, this may be a policy option to consider. The insured sum may be limited for each vehicle or consignment. Check that the limit is adequate.

Employee Theft Insurance

There is no shortage of temptation for hotel staff. They have access to stock, guests' property and money on the premises.

  • Guests pay by cash to settle bills and this money can easily be misappropriated.
  • Valuables can be stolen and the company credit card used for personal gain.
  • Often employing seasonal/temporary staff means there's higher risk of theft.

Sometimes called Fidelity Guarantee or Employee Dishonesty, this isn't always covered under Loss of Money. It protects you against loss of insured property as a result of theft or fraud by your employees.

Unfortunately, fraud is a fact of modern life. It's believed to be responsible for up to one third of all business failures, with smaller businesses most likely to go under as they often have poor financial controls. Often, it's just one person who signs the cheques.

Most hotels buy this type of cover.

Hotel security measures

A comprehensive hotel insurance policy will help recover some of the cost of burglary, robbery or employee fraud, but it makes sense to reduce the likelihood of these happening.

Like your business plan, hotel security should be reviewed regularly, at least once a year. Weigh up the potential risks to you, staff and customers as well as the building and stock.

Here are some basic security measures to consider implementing if you haven't already done so:

  • Vary times of visits to deposit cash in the bank.
  • Locate safes in a secure area with restricted access, locked when not in use.
  • Change computer passwords regularly.
  • Set up formal cash handling procedures and restrict the number of staff who carry out this task.
  • Identify business property with ultra violet security marker pens and keep a record of make, model and serial numbers of mobile phones, computers, printers, photocopiers, etc.
  • Don't count cash in public and limit the amount of money held in the cash drawer.
  • Don't allow access by the public to any private area - put up No Entry signs.
  • Protect the roof area against intruders and make sure skylights are secure.
  • Replace or reinforce external doors and windows that could be easily broken into. Fit with deadlocks and keep locked when not in use.
  • If you display high value items, eg, paintings or antiques, take photos for identification purposes.
  • Keep a key register and store keys securely.
  • Install an intruder alarm system. Some insurers insist you use a contractor who is a member of the National Advisory Council on Security Systems (NACOSS) for the installation of intruder alarms.
  • Install CCTV. Keep tapes for at least a week.
  • Install a fire alarm and drill staff in the emergency evacuation plan.
  • Don't buy or rent premises with a cashline machine outside the building.
  • Never hire staff without first taking up references.