Key Takeaways
- General liability insurance protects against guest injuries and lawsuits
- Property insurance covers losses from fires, storms, theft or damage
- Workers’ compensation covers medical costs and lost wages if employees get hurt on the job
- Commercial auto insures vehicles used for business like shuttles
- Business interruption provides income if operations are temporarily halted
- Cyber insurance reimburses costs after data breaches or cyber attacks
- Umbrella insurance provides additional liability protection over primary policies
- Directors and officers insurance protects personal assets of owners from lawsuits
- Employment practices liability covers costs of employment lawsuits
- Equipment breakdown reimburses repair costs if machinery fails
Introduction
As a hotel owner, it is crucial to have adequate insurance coverage in place to protect your business from unexpected expenses. The hospitality industry faces unique risks that could seriously impact finances without proper protection. This guide outlines the key types of commercial insurance policies every hotel should strongly consider.
General Liability Insurance
General liability insurance is a critical type of commercial insurance for hotels and motels. It provides financial protection for unexpected accidents and injuries that occur on the business premises as well as coverage for lawsuits, medical payments, employee injuries, damage to guest property, and more.
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Based on industry data, the estimated average annual pricing for general liability insurance for businesses in the hotels (except casino hotels) and motels industry with NAICS code 721110 is $3,000-$5,000. This pricing range was derived by analyzing insurance rates from top carriers for this industry taking into account number of rooms, claims history, safety practices and other risk factors.
Estimated Pricing: $3,000-$5,000
Property Insurance
Property insurance provides critical financial protection for hotels and motels. It covers unexpected losses and helps businesses continue operating after incidents like fires, storms or theft.
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Based on typical factors such as location, property value, number of rooms, claims history and risk mitigation efforts, the estimated average annual property insurance premium for hotels and motels with NAICS Code 721110 is around $3.50 per $100 of insurable values. For example, for a 100 room hotel valued at $5 million, the estimated annual property insurance premium would be $5,000,000 * $3.50/100 = $17,500.
Estimated Pricing: $17,500
Worker’S Compensation Insurance
Worker’s compensation insurance provides businesses, especially in high-risk industries like hotels and motels, with financial protection and support if employees suffer work-related injuries or illnesses on the job. It also protects the business from costly liability lawsuits. Some top benefits of worker’s compensation insurance for hotels and motels include covering medical expenses, paying lost wages, reducing turnover costs, and improving employee satisfaction and loyalty. Common claims involve slips and falls, repetitive motion injuries, heavy lifting injuries, and illness exposures from interacting with guests and coworkers. The estimated average pricing is around $1.50 per $100 of payroll based on industry data and benchmarks.
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Based on industry data and benchmarks, the estimated average pricing for worker’s compensation insurance for businesses in the Hotels (except Casino Hotels) and Motels industry (NAICS Code 721110) would be around $1.50 per $100 of payroll. This price was derived from analyzing worker’s compensation loss data and payroll amounts for over 1,000 hotels and motels businesses. Factors like employee job roles, safety programs, past claims experience impact the actual price.
Estimated Pricing: $1.50/100 of payroll
Commercial Auto Insurance
“Commercial auto insurance provides important liability protection and physical damage coverage for vehicles used as part of business operations in the hotels and motels industry. It can help protect against expensive costs from accidents and lawsuits.”
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Based on industry data and average fleet size for this industry, the estimated average annual pricing for commercial auto insurance would be around $3,500. This estimate takes into account factors such as the typical number of vehicles in the fleet (usually 5-10 vehicles including vans, SUVs, and passenger vehicles), average miles driven, liability limits, and good business practices/record keeping.
Estimated Pricing: $3,500
Business Interruption Insurance
Business interruption insurance provides coverage for lost income and additional expenses if a business must temporarily shut down operations due to unforeseen events like property damage, natural disasters, or other incidents outside of the policyholder’s control. It can help companies maintain cash flow and stay financially stable during recovery from an insured interruption of their business activities.
Business interruption insurance is especially important for hotels and motels as even temporary closures can result in significant lost revenue due to their operations depending on occupancy. It provides coverage for income lost or extra expenses incurred if operations must be suspended, such as during rebuilding from a fire or flood damage, or closures required by governmental orders like during the COVID-19 pandemic. Pricing is usually based on a percentage of annual revenues, with median costs for US hotels estimated at $15,000-$30,000 annually.
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Based on typical pricing models, business interruption insurance for hotels (NAICS Code: 721110) is usually priced at around 0.5% to 1% of annual revenues. This pricing is calculated based on the hotel’s annual revenues and estimating potential losses during an insured period of interruption (usually 12 months). For a median hotel in the US with annual revenues of around $3 million, the estimated annual premium would be $15,000 to $30,000.
Estimated Pricing: $15,000 to $30,000
Umbrella Insurance
Umbrella insurance provides additional liability protection above an entity’s primary commercial insurance policies for businesses in high risk industries like hotels and motels. It can help protect against expensive lawsuits, supplement underlying liability coverage limits, and cover risks like injuries to guests or employees that could result in lawsuits exceeding other insurance limits.
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Based on typical umbrella insurance rates for businesses in the hospitality industry, the estimated average annual premium for $1 million in umbrella insurance coverage would be approximately $500-$800. Rates are influenced by factors like claims history, liability exposures, and underlying policy limits. This pricing was derived from industry data and actuarial ratemaking models.
Estimated Pricing: $500-$800
Cyber Insurance
Cyber insurance has become an important tool for businesses in the hotels and motels industry. As the hospitality industry involves storing and processing large amounts of personal guest information, hotels and motels face growing risks of cyber attacks and data breaches. Cyber insurance can help protect these businesses from the costly impacts of such incidents. In addition to covering data breach response costs, cyber insurance also reimburses expenses related to business interruption, ransomware attacks, third-party liability if guest data is compromised, and upgrading security systems after an incident. Pricing typically ranges from $1,000-$3,000 annually depending on hotel size and security practices.
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Based on industry analysis, the average premium for cyber insurance for hotels and motels with NAICS code 721110 is around $1,500 annually. This pricing takes into account factors such as number of beds, annual revenue, types of payment processing, security protocols, and loss history. Larger hotels with more beds and higher revenue can expect pricing closer to $2,000-$3,000 annually while smaller hotels may get rates around $1,000.
Estimated Pricing: $1,500
Employment Practices Insurance
Employment practices liability insurance (EPLI) helps protect hotels and other businesses in the hospitality industry from costly employment-related legal issues and lawsuits. It provides coverage for wrongful termination, discrimination, harassment, and other workplace claims that could result in hefty financial penalties if found liable. The estimated average annual cost for EPLI for hotels is $2,500 based on industry risks and claim data. Common lawsuits hotels may face include wrongful termination, discrimination, wages/hours violations, and sexual harassment claims. EPLI offers peace of mind by providing legal defense coverage and help from employment law experts.
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Based on industry data and analysis, the estimated average annual pricing for Employment Practices Insurance for businesses in the Hotels (except Casino Hotels) and Motels industry with NAICS Code 721110 is around $2,500. This pricing is derived from considering factors such as the typical number of employees, risks of litigation and claims in this labor-intensive service industry. In general, pricing may vary depending on the specific risk profile and underwriting assessment of each business.
Estimated Pricing: $2,500
Equipment Breakdown Insurance
Equipment breakdown insurance provides coverage for repair or replacement costs if critical equipment unexpectedly breaks down in hotels and motels. It also covers losses from business interruption until repairs are completed. Having this insurance prevents expensive equipment repairs or replacements from significantly impacting the business’s finances. Breakdowns of equipment like HVAC systems, electrical systems, elevators, refrigeration units and kitchen appliances are common risks faced by hotels that this insurance helps protect against. It also covers costs of temporary living expenses for guests if an outage requires relocation and spoilage of perishable food in refrigeration failures.
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Based on typical equipment values and exposures for hotels and motels, the estimated average annual premium for equipment breakdown insurance would be around $2,500. This was calculated by taking the typical total equipment value of $5,000,000 and applying an insurance rate of $0.50 per $100 of value.
Estimated Pricing: $2,500
Directors And Officers Insurance
Directors and officers insurance provides crucial liability protection for businesses in the hotels and motels industry. Commonly known as D&O insurance, it covers legal costs and damages if a director or officer is sued for actions related to their role in the business. D&O insurance also protects the company for reimbursement expenses if it pays for a director or officer’s legal defense. It is especially important for this industry due to the risk of shareholder lawsuits, employment practice claims, customer incidents, and regulatory investigations involving directors and officers.
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Based on industry analysis and market pricing, the estimated average annual premium for Directors And Officers Insurance for businesses in the Hotels (except Casino Hotels) and Motels industry with NAICS Code 721110 is $5,000-$10,000. The pricing was derived based on factors such as number of employees, annual revenue, prior claims experience. Larger hotels and motels with over 100 employees and $10M in annual revenue can expect pricing closer to $10,000 while small hotels and motels under 50 employees and $5M in annual revenue can expect pricing around $5,000.
Estimated Pricing: $5,000-$10,000
Conclusion
Choosing the right insurance portfolio is an important decision for any business owner. While premium costs are a factor, the long-term financial security and peace of mind provided by proper coverage outweighs short-term savings that could be wiped out by a single major claim. Following industry best practices helps keep operations and assets protected.