When it comes to insuring a hotel, the General Liability (GL) policy is one of the most critical components of coverage. It protects hotel owners and operators from financial losses resulting from claims of bodily injury, property damage, and other liabilities that could occur on the premises. But when it comes to pricing these policies, there are several factors insurance carriers take into consideration. One of the key elements in determining your General Liability premium is the number of rooms your hotel has, and sales.
In this blog post, we’ll break down how these factors are used in determining your hotel’s GL insurance premium, and why the number of rooms is a non-auditable factor at the end of the term.
The Basics of Hotel General Liability Insurance Rating
General Liability insurance for hotels is typically rated based on two main factors:
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Sales (or Revenue): This includes the income your hotel generates from operations such as room rentals, food and beverage services, event hosting, and any other business activities conducted on the premises.
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Number of Rooms: The total number of guest rooms your hotel has is another important factor. Hotels with more rooms generally face a higher volume of traffic, which could increase the likelihood of accidents or incidents that lead to liability claims.
How Sales Affect Hotel GL Insurance Premiums
Sales or revenue directly correlates to the size and scope of your hotel's operations. For example, a luxury resort with high-end services will have a different risk profile compared to a small boutique hotel. Insurers recognize that larger revenue generally means greater potential for liabilities, whether it’s from larger crowds, more activities, or increased service offerings.
As your sales increase, so too does your exposure to potential liability claims, which is why insurance carriers use revenue as a basis for determining the premium. However, sales are an auditable factor, meaning that at the end of the policy period, an audit is typically conducted to ensure that the declared sales match the actual revenue generated. If your hotel has earned more than anticipated, the insurance carrier will adjust your premium accordingly, and if it earned less, you might receive a refund or a reduction in the premium.
How the Number of Rooms Affects Hotel GL Premiums
The number of rooms is another important factor in rating your General Liability coverage. The logic behind this is simple: the more rooms your hotel has, the greater the potential exposure to liability claims. With more guests comes the potential for more accidents, injuries, or damages.
However, unlike sales, the number of rooms is generally considered a fixed or non-auditable factor. This means that once the policy is in place, it is unlikely to change throughout the term unless you add or reduce the number of rooms. It is counted at the start of the policy and remains unchanged, even if the actual number of rooms fluctuates slightly during the term.
Why the Number of Rooms Is Non-Auditable
The non-auditable nature of the number of rooms means that insurance carriers don’t revisit or adjust the premium based on the actual number of rooms occupied or the actual hotel size at the end of the term. Instead, they rely on the original count you provided at the start of the policy.
This is because room count is typically fixed for long periods (unless the hotel undergoes an expansion, renovation, or significant changes to the facility). As a result, insurers prefer to take a snapshot of the hotel’s size and use that data to establish an appropriate premium. While the number of rooms doesn’t fluctuate throughout the policy term like sales might, it remains a key factor in determining the overall exposure and risk.
The Impact of Room Count on Your Premium
Since the number of rooms is a fixed factor, it plays a key role in the base premium calculation. Hotels with more rooms generally face higher premiums because there is more potential for incidents like guest injuries, property damage, or even slip-and-fall accidents. Additionally, larger hotels may also have more amenities, which can increase the number of liability exposures.
For example, a 100-room hotel is likely to pay a higher premium than a 10-room bed-and-breakfast because of the increased risk associated with higher guest volumes. Larger hotels may also face more complex claims related to events, catering, or large conferences, all of which contribute to higher risk and a higher premium.
Sales vs. Number of Rooms: What Matters More?
Both sales and number of rooms are important when rating a hotel’s General Liability policy, but they play different roles:
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Sales are used to measure the financial activity and operational risk of the hotel. Larger sales typically mean higher premiums because of the broader range of services offered and increased exposure to liability claims.
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Number of rooms is a measure of how many people your hotel can accommodate and, by extension, how many guests are exposed to potential risks during their stay.
The combination of these two factors allows the insurance provider to assess the overall risk and set a premium that appropriately covers the hotel's potential liabilities.
Conclusion
When it comes to rating your hotel’s General Liability insurance, the number of rooms and sales are both critical factors. While sales can fluctuate and be audited at the end of the term, the number of rooms is considered a non-auditable factor, meaning that once it's set at the start of the policy period, it remains unchanged throughout. The higher the number of rooms and the larger the sales, the more likely it is that your premium will be higher to cover potential liabilities.
It's important for hotel owners to understand these rating factors when purchasing insurance, as they directly influence the cost and coverage of your General Liability policy. Working with an experienced insurance broker can help you navigate these factors and ensure you’re getting the right coverage at the best price for your hotel’s needs.