The hospitality sector faces significant risks due to the complexity of its vast operations, often inclusive of multiple brands and locations, exacerbated by the current challenge of high turnover rates amid staffing shortages. From maintenance issues to staff safety, hotels must navigate a challenging landscape of potential threats. This vulnerability underscores the need for a proactive risk management strategy to uphold secure operations, safeguard guests and staff, and maintain profitability while preserving brand integrity.
Leveraging the Internet of Things to proactively mitigate risks yields two major benefits. First, it offers a solution to manage real-world perils in vital areas of hotel operations, which comes with cost savings potential. Second, it reduces the need to tap into another operational expense—insurance. Read on to discover how IoT can help effectively manage risk and the implications it can have on insurance.
IoT for Risk Management
In terms of risk management, there are several applications to consider. For starters, given the recent resurgence of bedbugs, hoteliers can bolster prevention efforts by equipping beds with IoT-connected bedbug monitoring sensors for continuous observation and early detection. This automation helps mitigate infestations, which typically take seven weeks to discover without a proactive monitoring solution. More importantly, early detection can prevent the incident from becoming costly, especially when you factor in lost revenue while rooms are undergoing remediation, replacement of soft goods, treatment costs, and more. Aside from the hard quantifiable costs to hotel operations, brand and reputational damage from an infestation can do more harm for business—with reports stating that a single negative review from bedbugs can lower the value of a hotel room by up to $38 per night.
Food service plays a crucial role in hotel guest experiences, emphasizing the importance of technologies that facilitate seamless operations to prevent food-borne illnesses and outbreaks, which could cost hoteliers up to $2.1 million, depending on the severity, legal fees and fines. By deploying IoT sensors to automatically monitor and record temperatures in cold holding/hot holding units, hoteliers can ensure that food is stored at safe temperatures and promptly notify management of any deviations, lessening the risk. This, in turn, helps to safeguard guests and restaurant customers, protect brand reputation and preserve bottom-line profits.
Moreover, the hospitality sector grapples with one of the highest rates of workplace assault and harassment (58 percent), highlighting the necessity for staff safety solutions. With IoT, hoteliers can provide staff with wearable safety devices that discreetly signal for help in emergencies or unsafe situations. When activated by a staff member, these devices instantly alert management, providing precise location data to enable swift dispatch of security personnel. These solutions not only have the potential to avert unsafe situations, but can offer residual benefits such as fewer workers’ compensation claims and lower costs—both direct and indirect.
Finally, water leaks—the leading cause of property loss in commercial buildings with average claims ranging from $80,000 to $90,00—often go unnoticed until significant visual damage has occurred, resulting in costly remediation and replacement expenses, business interruptions, increased utility bills, and resource wastage. Considering that a 200,000-square-foot hotel with 400 average-sized rooms has over 2,000 potential failure points for leaks across guest rooms, laundry and event facilities, implementing an early water leak detection solution enables hoteliers to identify and prevent leaks from escalating into disastrous situations and costly claims.
Proactive Risk Management Efforts
The benefits of leveraging IoT solutions for risk management extend beyond enhanced safety and operational efficiency. One significant advantage lies in the potential reduction of insurance costs, which is becoming increasingly crucial as several reports indicate insurance premiums for hoteliers continue to rise. According to one sample, hotel insurance costs increased by a CAGR of 6.2 percent between 2015 and 2022. Another report indicates hotelier’s insurance-related expenses rose 33.1 percent over the past two years.
Many large hotels rely on underwriters and carriers to assume risks at the best possible rate. By highlighting initiatives such as implementing IoT-enabled risk management solutions to reduce claims and lower payout amounts, hotel owners can persuade underwriters to offer better coverage terms and rates. These initiatives not only benefit the hotel owner by reducing insurance costs, but also enhance hospitality operations and guest safety, which are important since there are limitations to insurance coverage.
Consider, for example, if a guest gets bitten by a bedbug. Typically, hoteliers would look to their general liability coverage and loss runs to address damages to the guest and remediation efforts, but reputational harm and negative PR are generally not covered by insurance, and the business loss from those events could be more costly than the claim itself.
In another example, if a guest gets sick from a hotel restaurant, damages would typically be covered by general liability, and any lost revenue from closures is often covered by additional coverage options that many hoteliers are opting to carry. However, business loss from reluctant diners who heard about the incident would mean additional losses beyond the claim.
Fundamentally, most insurance plans will cover general liability and excess limits above those amounts for routine claims. However, in most instances, business interruption and loss of income because of closures, negative PR, reputational damage, and more are not covered by insurance—and often cost hoteliers more. That's why implementing IoT solutions that can both aid in securing lower insurance rates, as well as mitigate risk-based incidents, can be so impactful for hoteliers.
What Hoteliers Need to Look For
Hoteliers have a tremendous opportunity to improve their operations and keep their overall insurance costs from rising by leveraging IoT technology and automation to proactively manage risk. Deploying IoT can help hoteliers minimize the likelihood of business interruption and lost revenue, while potentially reducing the frequency of claim filings and expensive claim payouts. Moreover, proactive risk management strategies can strengthen hoteliers’ position when insurance renewals come around by demonstrating to underwriters and carriers the value of their risk mitigation efforts.
Beth Milano is an IoT solutions consultant at MachineQ, an enterprise IoT company within Comcast.