Insurance Alone is not a Good Risk Management Solution

Insurance Post-It-Note Means Financial Protection And Security

By David DeMoss

Many hoteliers think that because they have a property and casualty insurance policy, all their risk management concerns are covered. Risk management is a very broad term and it can mean different things to different people, depending on their areas of concern or history of issues. All risk management issues are handled in four categories. You can:

  • Avoid it
  • Accept it
  • Reduce/Control it
  • Transfer it

Insurance is simply a tool that is used to transfer risk of loss (the last option mentioned above) to an insurance company. The risk exposures still exist; you are simply transferring some of the possible financial loss due to those risks to the insurance company. The problem with relying 100% on your insurance policy is that it won’t protect you from all the exposures you face, and if you have too many claims for issues it will cover, it will cost you additional premium for years. If you have too high a loss ratio (claims paid vs premium paid) the insurance companies will penalize you pretty heavily in the form of very high premiums, and they keep track of your losses for 3-5 years.

There are many issues that a property and casualty insurance policy won’t protect you from. Some examples of these are:

  • OSHA inspection fines
  • Department of Labor – Wage & Hour inspection fines
  • Many vendor services that affect your guests
  • Employee lawsuits (Some can be covered if an EPLI policy is in place)
  • Assumed liability in many business contracts
  • Punitive damages cannot be covered by an insurance policy in most states

There are simple things that can be put in place to help protect you and your insurance loss runs. Some include:

  • Review every contract before you sign it. You’ve heard a salesperson tell you to “just sign – it’s a standard contract”. Well there is no such thing as a standard contract! Some contracts are horribly one sided and can cause you a lot of pain if triggered. Pay special attention to the indemnity clause.
  • Keep current vendor certificates of insurance! It’s free protection you should expect! Have every vendor name you as Additional Insured on their insurance and keep a current copy of a certificate of insurance on file. In general you want your vendors to carry Worker’s Compensation, General Liability, Auto, and any specialty coverage if needed for their services. (Example: A Massage Therapist would need Professional Liability)
  • If your vendor does not carry insurance, FIND A NEW VENDOR! Imagine if your landscaper’s riding mower got away from him and it hurts a guest. If they don’t carry the correct insurance, and name you as additional insured, you will probably be paying that claim – especially if your carrier denies the claim.
  • Have a hiring and firing system in place with a simple checklist that is reviewed by a professional at least once a year. Your hotel may not be able to have an HR person on staff, but you can have a consultant set you up with a good system and then review it as needed. The key is to stick to the system at all times.
  • Make sure ALL employees are classified correctly and familiarize your team with key concepts of Wage & Hour laws. Don’t try and cheat the Department of Labor. They are watching hotels, and it’s expensive if you get caught for Wage & Hour issues in an inspection.
  • Make sure you are compliant with all OSHA requirements and be aware of any state agency requirement that may affect your hotel. OSHA can seem like an endless black hole of information as you try to figure out what applies to your situation, but it’s not that difficult for hotels, and there are specialists that can make it very simple to set up and maintain the requirements.

Don’t be a victim of over confidence/reliance on your insurance policy.  It will protect you at times, but can leave you exposed and paying at others.  With a little help, and a few simple systems, you can protect yourself, your money, your hotel, your guests, your employees, your loss runs and your insurance premiums.