Every business needs insurance, but it gets a little more complicated with the hospitality industry. Housing and catering to guests means a basic insurance business policy simply won't cut it (to learn about this basic coverage, see The Key Components of Your Business Insurance Policy).
If you run a hospitality business or are planning on starting one, this article will help you understand what kind of insurance you will need.
What, Exactly, Is a Hospitality Business?
A hospitality business is a business whose customers stays on the business property to be catered to in some way. It involves much more interaction and involvement with the customer than a business model centered on customers leaving the premises after purchasing a product.
Businesses that fit this definition include:
- Accommodation Services: hotels, motels, lodges, bed & breakfasts, inns
- Dining and Leisure: restaurants, bars, movie theaters, spas
- Activity-Oriented Businesses: golf courses, sailboat rental, bicycle rental, horseback riding
In general, if you are inviting members of the public to eat, sleep, or take part in some sort of leisure activity, your business falls under the hospitality category.
Coverage for Hospitality Businesses
All the activity happening on your premises and customers staying for an extended period of time means that your hospitality business is exposed to a lot of risks. And where there's risk, there's a need for insurance.
So, let's go over the coverage you'll need to make sure that your business is protected.
If you own a hospitality business, you almost certainly own some property that is essential to your business operations. These could be your business's:
- Physical structure: restaurant, hotel, stable
- Property used by guests: bicycles, sailboats, horses
- Property used by staff: computers, kitchen equipment, laundry facilities
Each of these requires separate coverage.
Insuring the business's physical structures and their contents requires insurance that is similar to that purchased by any other business. A standard business policy will, among other things, cover you for:
- Accidental overflow of water
- Freezing pipes
It might also cover you for the specialized equipment and living animals your business owns – everything from computers and boilers to the grass and trees on your golf course.
Unless you're running the business entirely on your own, we recommend getting a policy that covers both theft from outsiders (like burglaries or armed robberies) and employee theft (see Inside Jobs: How to Prevent Employee Theft for related reading).
Guest Property Coverage
Guest property coverage protects you in case a guest's property is stolen from your premises. If your guest's property is stolen from their room while they're out, you could be sued for the loss. When that happens, it's good to have an insurer on your side.
Equipment Breakdown and Business Interruption
Your business's success relies on guests having a great experience at your establishment. But if your equipment fails, giving them a comfortable stay will be a challenge.
Equipment breakdown insurance helps you get up and running as soon as possible. If your refrigeration equipment fails and you have to dispose of large quantities of food, for instance, having coverage for the equipment and the spoiled goods means you can repair or replace it as soon as possible without having to worry that you won't be able to afford it – especially if you have to issue refunds to your guests (find out How to Protect Your Business from Coverage Gaps Related to Equipment Breakdowns).
Similarly, power outages, storms, and other events can interrupt your business operations, which could mean lost sales, lost customers, or stays cut short. With business interruption insurance, you can get compensation for these lost earnings.
Natural Disaster Coverage
If your business in an area that is subject to earthquakes, floods, or hurricanes, read the policy carefully. Losses caused by these disasters are rarely covered by standard business property policies.
If you want protection against these perils, discuss your options with your insurance agent or broker.
General Liability Coverage
Liability risks are a part of doing business. Some of the more common liability issues faced by business owners include:
- Slips, Trips, and Falls: If one of your guests slips on spilled food, trips on a handbag another patron left on the floor of the dark movie theater, or falls in a poorly lit stairwell because because a burnt out lightbulb made it hard for them to see where they were stepping, you could be sued
- Foreign Objects in Food: Everyone does their best to avoid this problem, but with hundreds of dishes being prepared and served every week, often at a frantic pace, mistakes happen
- Food Contamination: No matter how much effort you put into selecting, storing, and preparing your ingredients, it's not always possible to catch every invisible contaminant that might be lurking in them
A general liability policy will cover these and more. But it won't cover everything. Before settling on a liability policy, make sure it includes the risks that are particular to the kind of business you're running.
If you run a movie theater or a riding stable, this probably won't apply to you. But if your establishment serves alcohol, a liquor liability policy is absolutely mandatory.
Not only is it required, it's just plain smart. Intoxicated people can do a lot of damage – to themselves and others – and you don't want to be held liable for it. If one of your patrons drives themselves home after knocking back a few drinks, you might be a party to any lawsuit that follows, so it pays to be protected.
Workers' compensation is mandatory under the law. If one of your employees is injured on the job and you don't have workers' comp insurance in place, you will face serious penalties (see An Intro to Workers' Compensation to learn more).
Data Breach Insurance
Chances are, you keep either customer and client data or sensitive business information in your computer system. Hackers are always trying to get one step ahead of the best security measures and cyber crime rates are increasing. So, make sure you have good cyber insurance in place, no matter how secure your system is (even if you run a small business, You Might Need Cyber Insurance).
Racism, sexism, ableism, ageism – the world is an imperfect place, and your business could find itself on the receiving end of a lawsuit as a result. Suits against a business by employees, job applicants, and customers alleging discriminatory treatment, policies, or procedures are not unheard of.
No matter how well-intentioned you are, you might still run afoul of this. Coverage is available and it's worth looking into.
Last but certainly not least, even if you have insurance coverage for everything discussed above, it's never a bad idea to get more.
An umbrella policy is essentially additional protection on top of your existing coverage. It might not cover additional perils, but it will increase the amount you can claim and collect from your primary policies (learn more about Umbrella Insurance for Businesses).
Get the Coverage You Need
When you're hosting customers and clients, you take on special risks. Make sure you've got the coverage so your business can stay afloat and continue giving your guests a stellar experience.