by David DeMoss
Hotels are under constant risk of costly scenarios such as guest lawsuits or employee workers compensation claims. To many hotel owners, insurance may seem like nothing more than a necessary evil and a drain on the bottom line. Others may see it as an overwhelming endeavor they deal with every year. Yet, approaching the topic with the right understanding and prioritization may mean the difference between continuing to run a successful business or facing an insurmountable financial crisis.
In navigating the complex task of selecting the most appropriate insurance policy, the decision typically comes down to four factors: price, coverage, service and buyer/broker relationships. All of these factors are important and can help build a strong insurance program for your hotels, but one easily outweighs the others. Before the buying process begins, decision makers should be asking themselves, “How do I prioritize these factors to best suit my concerns?”
Unfortunately, the answer to that question is often made for the buyer, as many brokers themselves don’t even understand the details of the product they are selling. Many brokers ultimately reduce the process to that of buying a simple commodity, selling strictly based on low premium, low-cost bargain policies. As a result, they condition buyers to predominately focus on price-driven factors, as opposed to other priorities and factors that could be more important. Making insurance buying decisions strictly based on price can get an hotelier in trouble.
Understandably, a buyer who focuses mostly on price is doing so out of economic concerns, but ironically, their need to purchase insurance stems from a concern to protect future business interests and revenue. To that end, hoteliers would benefit far more by focusing on the savings gained by an effective policy that provides greater protection from financial losses in the long term. This could be referred to as a “Savings On Investment™” (SOI)™, as opposed to ROI, when it comes to insurance. As an example: a hotelier decides to buy the cheapest policy he can find and saves $4,000 a year for 10 years. In Year 11, he has a claim and it’s not covered correctly, which costs him $100,000. Had he purchased the better policy for the extra $4,000 per year, his SOI would have been $60,000.
The relationship between a buyer and a broker can also be a major deciding factor. A long standing business relationship, a referral from a third party, or even a friend of the family can be hard to say “no” to. A good relationship can be comfortable and make the buying process seem easier. However, policies that result from a relationship as the primary factor may not have any real emphasis on the coverage and service needed. The broker can often rely on the relationship to get the deal closed, and buyers that place too much priority on the relationship factor could be missing out on other important business opportunities and needs.
Another factor that may sway a buyer to select a specific policy is the additional services a broker or carrier may offer beyond the actual policy. Although these may provide some level of convenience or value and may even have long-term savings built in, they do virtually nothing to enhance the core coverage ability.
While each of the above-mentioned factors may play a sizeable role in purchasing insurance, the truth is that when it comes to assessing and comparing insurance policies, the quality and amount of coverage should always be given the highest level of consideration. Keep in mind that coverage is more than just the Building, Income and Contents limits. It includes how it pays, when it pays, what it includes, and what it excludes. These factors can make or break a policy and are all very important considerations.
With that in mind, there are many questions that should be asked during your insurance shopping process. Some general questions to consider should include:
- Is the policy designed for the hotel industry?
- What are my coverage limits and how were they decided upon?
- What are the exclusions?
- What are some common situations I would encounter in a regular day that would not be covered?
- What is the claims process? Is there a third party administrator (TPA)?
- How aggressively does the carrier pay or fight claims?
- Is Earthquake, Wind, Flood coverage included? What are the deductibles?
When faced with a claim without the proper coverage, buyers quickly discover that insurance offered at a bargain price with added value services and a great buyer/broker relationship means virtually nothing. When the time comes to actually file a claim, then buyers finally know whether their decision to go with a particular policy was indeed the right choice. For buyers that place a primary emphasis on a policy’s price, the decision to pay less may ultimately mean a much higher cost in the long term. As has been said in the past. “What’s the right price for the wrong coverage?”