How business interruption insurance can prepare you for the worst

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Hotels, by nature, are often located in social hubs. Being at the nerve center of a travel destination can be a smart business play, but what happens in the event of a catastrophe that grinds travel to a halt? 

If possible the industry would avoid discussing scenarios such as these, but hotels should be prepared. Business interruption insurance is one tool for hotels to utilize during trying times caused by unforeseen events. According to Sean Murphy, senior director/VP of the real estate & hospitality practice at Arthur J. Gallagher & Co., a global brokerage for commercial insurance, hotels are often unaware of the types of insurance they need to purchase in order to protect their bottom line. Hotels often comply with the Terrorism Risk Insurance Act, only to find out that they are only protected from direct damage done to the property.

“During the Boston Marathon bombing in 2013, hotels lost business but no hotel was impacted damagewise,” Murphy said.

“It’s an area we have seen that hotels don’t think about much.”Often in the event of a crisis such as this, businesses near hotels are targeted, but not the actual hotel. This still translates into a loss of business for the property. David DeMoss, president of risk-management software developer Wakeup Call, said that many hotels are guilty of going through the motions during insurance talks, renewing their policies year after year and aiming for the least expensive programs, something DeMoss said is an invitation for liability.

“Hotels need a good broker,” he said. “It’s never a good strategy to buy insurance strictly on price. That turns it into a commodity.”

Purchasing policies is trickier than one might think, and nobody says it’s easy. Often operators compare the numbers on a policy and don’t delve into the details, creating complications when it is time for the hotel to collect.

“Hotels compare policies and say ‘the building limit is the same, business insurance and loss of income are the same, so the policy must be the same.’ This is not true,” DeMoss said. “What’s behind the numbers is what makes the policy kick. If I offer you $100 million in insurance and make it impossible for you to get to it, that’s bad news you will find out too late.”

According to Murphy, hotels also often gloss over the importance of liability in the face of disease. Many insurance policies include exclusions for one or multiple diseases, including outbreaks of bacteria or fungus, such as Legionnaires' disease. Additionally, these events are few and far between, making them easy to forget about. But with the growing presence of the Zika virus internationally, hotels should steel themselves for the potential of lost business.

“When they happen, these are huge, business-ending events,” Murphy said. “Partner up with the right people to stay ahead of the curve at the operations level. See what’s emerging in your business. Take the rest of the world, outside of the U.S., and plan for what they are facing. Illness. Terrorism. The aging work force. Plan for it.”