Hotel insurance: Top controls and practical applications

Hotel insurance is a critical component of risk management in the hospitality industry. Ensuring that a property is properly covered and that insurance policies are effectively managed can safeguard the hotel from financial and legal risks. Below are the top insurance controls every hotel should have, along with examples and practical applications.

1. Requirement for Proper Insurance Coverage

Hotels must maintain a comprehensive insurance policy that covers various risks. This responsibility lies with the hotel management company, but owners must ensure that adequate coverage is in place if they opt out of the corporate policy.

Example: A hotel chooses not to be part of the corporate insurance policy and must independently secure coverage. The management must notify the owners in writing that they are no longer included in the corporate plan.

Practical Application: Hotels should conduct regular insurance audits to verify that policies remain up to date and meet operational needs.

2. Timely Claims Reporting

All claims must be reported promptly to the insurance company. The Director of Finance and the Director of Security are responsible for ensuring claims are filed as soon as an incident occurs.

Example: A guest slips in the lobby and suffers an injury. The incident is immediately documented, and a claim is filed with the insurance provider the same day.

Practical Application: Establish a clear internal process for claim documentation, including incident reports and a defined timeline for submission.

3. Use of Attorneys for Insurance Matters

For claims exceeding the deductible, only attorneys approved by both the insurance company and the corporate office may handle legal matters.

Example: A guest sues the hotel after a severe accident. The case is handled by an attorney approved by both the corporate office and the insurer to ensure proper legal representation.

Practical Application: Hotels should maintain a list of pre-approved attorneys to streamline legal proceedings when necessary.

4. 4. Managing Claims under the Deductible

For claims below the deductible threshold, the Director of Finance must ensure a rapid resolution to minimize financial impact.

Example: A minor kitchen fire damages some equipment but does not exceed the deductible. The Director of Finance arranges for quick repairs and keeps records of all expenses.

Practical Application: Set aside a contingency fund to handle minor claims efficiently without delay.

5. 5. Comprehensive Claims Filing

All incidents, regardless of their perceived value, must be filed as claims with the insurance company.

Example: A hotel experiences a minor plumbing issue that causes temporary inconvenience to guests. Even though the cost seems negligible, it is reported to the insurance company in case larger issues arise later.

Practical Application: Train staff to document and report all incidents to ensure complete transparency with the insurer.

6. Proof of Insurance for Clients and Vendors

The Director of Finance is responsible for providing proof of insurance upon request from clients, groups, or vendors.

Example: A corporate client booking a conference at the hotel requests proof of insurance before finalizing their agreement. The Director of Finance promptly provides the necessary documentation.

Practical Application: Keep digital copies of insurance certificates on file for quick access and distribution when requested.

7. 7. Maintaining Essential Insurance Policies

Hotels must maintain active policies in key coverage areas, including:

1. Worker’s Compensation
2. General Liability
3. Property Insurance
4. Cyber Security
5. Professional Liability
6. Employment Practices Liability
7. Directors & Officers Liability

Example: A data breach exposes guest information. The cyber security policy covers financial losses and legal fees associated with the incident.

Practical Application: Regularly review policy terms to ensure they cover emerging risks, such as cyber threats or natural disasters.

8. Vendor Insurance Requirements

All vendors working within a hotel must provide proof of insurance before starting any work.

Example: A construction company hired for a hotel renovation provides liability insurance before beginning work on-site.

Practical Application: Require all vendors to submit proof of insurance before issuing contracts to mitigate potential liability.

9. Compliance with Annual Insurance Inspections

Hotels must comply with annual inspections conducted by the insurance company and address any identified risks.

Example: An insurance inspection identifies outdated fire suppression systems. The Director of Finance and General Manager coordinate timely upgrades to meet compliance standards.

Practical Application: Assign responsibility for compliance follow-ups to ensure all inspection recommendations are addressed promptly.

Final Thoughts

Insurance controls are essential for hotel operations to mitigate risk, protect assets, and ensure financial stability. By implementing these top controls, hotels can safeguard their business and provide a secure environment for guests and employees alike. Regular audits, staff training, and proactive compliance efforts will help maintain a robust insurance strategy tailored to the hospitality industry’s unique challenges.

David Lund Contact David at (415) 696-9593
Email: david@hotelfinancialcoach.com

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