As featured in the latest edition of QHA Magazine
There are various risks and challenges associated with operating a hotel business. Among the critical considerations for managing said risks is ensuring that you obtain adequate insurance for both the business and the premises, whether you use the premises under a leasing arrangement or own the property.
There are various types of insurances which a prudent business operator ought to take out to protect their business.
Public Liability Insurance
Public liability insurance is essential for protecting your business from the potential legal and financial repercussions of a claim arising from accidents, injuries or property damage during business operations. Public liability insurance is the minimum level of insurance that any prudent business operator must take out.
Coverage should include claims from any third party, including suppliers and customers, and the amount of coverage can vary depending on the needs of your business and the size of your operations. If you operate a larger venue and generally host a larger crowd, it would be more appropriate to obtain public liability coverage with a claim limit (generally $20m to $50m).
One of the main reasons hoteliers should prioritise having adequate insurance is to protect their property against unforeseen events. Whether it is a natural disaster such as floods or earthquakes, man-made accidents like fire, or intentional acts such as vandalism, property insurance will provide a financial safety net. This type of coverage will ensure you can recover and rebuild the business operations following an incident. Generally, property insurance will be for 90% or more of the replacement value of the property on the premises.
Business Interruption Insurance
Unexpected events such as temporary closures can lead to financial losses. Insurance policies that include business interruption coverage can assist your business during such periods of closure by compensating you for lost income and assisting in covering ongoing expenses. The purpose of this type of insurance is to help you ‘weather the storm’ and allow you to resume operations as normal once the business is able to reopen.
If you operate your business under a leasing arrangement, your obligations for insurance are generally outlined in your lease document. Usually, this will include the type and level of coverage that you as the tenant are required to take out in the name of your business and either a) in the name of the landlord or b) noting the landlord’s interest (and any mortgagee of the landlord).
The landlord will also usually have their own insurance for the business premises. It is important to consider and compare the insurances that will be taken out by the landlord for the business premises and the insurances which you will be obtaining for the business so that the business premises and operations are adequately insured.
In addition to fulfilling any obligations under a lease, insurance serves as a proactive and strategic method of mitigating risk, protecting your assets, and ensuring sustainability of your business from an unforeseen event. To maintain adequate insurance, it is important to review your coverage limits as your business grows so that the insurances you have in place are appropriate for your operations.