Insurance Coverage for Hotels & Resorts: Policies to Consider and Potential Pitfalls

By Dana Kravetz Firm Managing Partner, Michelman & Robinson, LLP | May 20, 2018

For many, just the mention of the word is enough for eyes to glaze over and minds to wander. Bring it up as fodder for cocktail party conversation, and the universal response is oftentimes a collective yawn. But insurance, though much maligned and not the sexiest of topics, is a critical cog in the wheel of commerce, and one that cannot be ignored. And that is because this intangible product is an invaluable tool that allows businesses, including those in the hospitality space, to manage the risk of financial loss - catastrophic and otherwise - by transferring it to third parties (read: insurance companies).

Of course, this transfer of risk comes at a cost, in the form of insurance policy premiums, which is not insignificant. Neither is the complexity of coverages that can leave hotel and resort owners and operators scratching their heads. With that in mind, this article seeks to demystify the subject and provide practical considerations for insureds in the hospitality industry.

Why Insurance Is So Vital

For any hotelier - large or small - the import of adequate insurance protection cannot be overstated. Why? Because inherent in the hospitality business are risks to guests, employees, property and revenues that can have severe and lasting financial consequences if left uninsured.

The possibilities for loss are endless: hotel guests or employees injured on site, resort property destroyed by natural disaster, diminished revenues on account of business interruption, costly data breaches that reveal customers' private customer information, embezzlement - the potential for exposure, both legal and to the bottom line, seems to lurk around every corner. This is particularly true given the extraordinarily litigious nature of our society. Lawsuits and liability claims are an unfortunate inevitability for hotels and resorts, and without proper insurance coverage, the associated costs could be insurmountable. Hence the necessity for each and every hotelier to avail itself of a comprehensive insurance portfolio that serves as a financial safety net in the event of a damaging occurrence.

The reasons why hospitality businesses need insurance do not end there. For instance, the law in most states obligates employers to obtain certain types of coverage (e.g., workers' compensation, unemployment and disability), and the failure to carry legally required policies could result in civil or even criminal penalties, among other things.

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Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.