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Putting a Premium on Risk Reduction

A LARGE HOTEL PROPERTY in a resort city had experienced a crime spree. It began with a rash of car break-ins and thefts, then escalated to an incident where armed robbers held two elderly guests hostage in their own room, stole their ATM card, and drained their bank account. After several terrifying hours, the robbers fled, and the victims contacted the front desk. Law enforcement officers were summoned, and the press followed close behind. Video of the traumatized victims was broadcast nationally.

It was not long before the hotel felt the repercussions of this crime. First, due to security concerns, a Fortune 1000 company cancelled its annual meeting, and then leisure travel bookings began to decline. Eventually, the hotel experienced a revenue loss of more than $350,000 because of the incidents. Still to be calculated are the legal fees that will be incurred in defending the hotel against an inadequate- security lawsuit and the potential increase in general liability insurance premiums due to the resulting adverse loss history. These additional expenses could easily add several hundred thousand dollars to the total bottom-line cost of the incident.

This hotel’s troubles illustrate the hospitality industry’s vulnerability to crime and its consequences, which far outlast the incident. The cost from the loss of reputation and the impact on insurance premiums can be significant.

Lodging security insurance policies are site-specific. Liability insurance costs can vary from $60 to $500 per guest room, depending on the property’s location, loss history, full or limited service, and other criteria. After an incident such as the one described here, the hotel could see a rise in premiums of as much as 30 percent and the losses will count against the hotel for at least four years.

As the former head of the hospitality loss prevention division at one insurance company, I have seen firsthand how insurance premiums are established, including what security and safety measures underwriters consider when setting premiums. The presence of appropriate policies and procedures influences insurers to make premium reductions. Companies that implement them will fend off risks and rising insurance costs. Among the most important are: a dedicated risk manager, incentive programs, good access controls, emergency response preparedness, reporting procedures, employee safety policies, written procedures, and a safety committee.

Dedicated Risk Manager

When an insurer’s loss prevention consultant arrives at a property to conduct a risk assessment, the usual first question is whether the company has someone, like the head of the security department, in charge of corporate risk management.

Carriers prefer one individual to coordinate a company’s loss control program. This risk manager need not be devoted full time if the company’s small size cannot justify it, but there must be one “go to” person in the organization. This individual must have the support of upper management, be held accountable for results, and be seen by other employees as a part of the plan to reduce losses.

Studies have shown that a company with a dedicated risk manager is more likely to have an active safety culture.

An example of how a dedicated risk manager can turn things around is a large Midwestern hotel chain that was experiencing parking lot break-ins at several of its properties. The company appointed a seasoned hotel security director as corporate director of security. In this capacity, he would review what had happened and recommend mitigating measures against future incidents.

I was the company’s insurance broker’s loss control representative at that time, and I worked with this security director to address the problem. Together, we reviewed the incident reports and visited the hotels where the break-ins had occurred. We met with local police, interviewed area businesses, conducted property walk-throughs, and spoke with many members of the staff.

From this due diligence came recommendations for a series of security improvements ranging from enhanced lighting, access control, and CCTV systems to hiring additional security personnel, all of which were implemented at the hotels most at risk. Since this occurred, the number of parking lot incidents (auto theft, vandalism, burglary) has decreased from an average of six per month to a total of two in the first three months of this year.

Written Procedures

Another key issue for insurers is whether the company has a written safety program and whether the manual that lays out the details of that program is readily available to all hotel employees. A lodging company lacking such written procedures is perceived as high risk, and underwriters may even refuse to provide coverage in those cases.

At a minimum, the safety manual should include sections on training required by the Occupational Safety and Health Administration (OSHA) covering critical topics such as bloodborne pathogens, hazardous materials, safe lifting, ladder safety, emergency procedures, and electrical safety.

Other recommended topics include safety and health policy, safety program responsibilities, compliance with safety rules and practices, the role of the hotel safety committee, insurance company reporting procedures, employee safety orientation and training, the hazard communication program, use of personal protective equipment, asbestos awareness, the driver safety program, workplace violence, pool-area safety, bomb threats, power failure, weather emergencies, and fire procedures. Each section should be location specific, if applicable. (Some issues that insurers give more weight to are elaborated on in the following sections.)

Safety Committee

Numerous insurance industry safety studies have shown that a key element of an effective loss control program is a high-functioning safety committee.

When assessing a company, an insurer’s loss prevention consultant will ask whether each property has its own safety committee, how often it meets, and who is on it. The answers to these questions should be: Yes, there is a committee; it meets monthly; and it is composed of line employees and managers representing all departments.

The safety committee’s purpose should be to investigate accidents and “near misses,” as well as to conduct monthly property inspections. The committee should assign for all issues raised by the inspection a date by which corrections should be completed or a reason given for why they were deferred, and it should confirm the status of all reported issues during subsequent meetings.

The minutes or a report from the committee should be subsequently distributed to employees, thus engaging them in the process and multiplying the number of watchful eyes and listening ears on the property. In the author’s experience, numerous clients have reported that it was a room attendant, bellman, engineer, or other employee who prevented an incident by reporting suspicious people or activities to management.

The hotel’s general manager should review minutes from the committee’s meetings and present any problems noted during the committee’s building inspection to the engineering staff.


To further involve management and staff at all levels, the risk manager should also be instrumental in developing and implementing an accountability program for location managers. The program should provide incentives for reducing losses and tying accountability to bonuses. Insurers look favorably on such programs; the industry’s benchmarking studies show that companies that give employees a financial stake in security have fewer losses and claims.

The most effective safety and security programs have attainable goals, such as a reasonable reduction in the frequency and severity of incidents or claims—usually 20 to 25 percent in one calendar year. For instance, the goal might be to reduce the number of slip-and-fall claims. To that end, the risk manager would develop protocols that location managers would be required to implement. These might include monthly property inspections along with requirements that employees wear nonslip shoes and that bath tubs and bathroom floors have a good nonslip coating.

The hotel’s insurer can supply data on how the hotel is performing towards its goal and, if requested, can use its loss prevention resources to assist the hotel in achieving its goal.

I know of one insurer that partnered with a Florida-based hotel company to reduce the number of slip-and-fall claims by guests. The insurance company assigned a loss prevention consultant to go to the hotel and work with local management. Using claims data, the consultant demonstrated the severity of the problem and pinpointed where most of the slip-and-falls occurred.

The problem was that the elevator foyer was floored with marble tile, and it was located only about 20 feet from the hotel’s pool area. Wet guests dripped water on the floor, creating a hazardous condition.

Management wanted to retain the marble floors for aesthetic appeal. The solution was a clear nonslip coating on the marble that enhanced friction. Additionally, rugs were installed at the pool area doors, along with signs warning guests that the floor could be slippery when wet.

These changes were made more than a year ago, ending the problem; no slip and fall claims have been filed since.

Access Controls

Good access control is a critical component of any risk-reduction program, but since hotels are open to the public, they cannot simply lock down the facility or rely on ID cards. Instead, they must have clear policies regarding who can stay on the property and who can be asked to leave, and they must consistently enforce these policies. Following are some of the issues that need to be considered.

Loiterers and vagrants. Only current and prospective guests, their invitees, and those with hotel permission have the right to be on the property. Policies and procedures should exist for the removal of loiterers, vagrants, and others who have no reason for being there. By implementing such a consistent policy against loiterers, the establishment can reduce the opportunity for criminals to linger on the property with the intent to commit a crime when the opportunity arises.

Evictions. There may also be times when someone who entered the property legitimately becomes disruptive. The hotel should have a policy for evicting guests and invitees if they display dangerous, offensive, or illegal behavior. A common example would be a loud party in a guestroom that disturbs fellow guests.

Most hotels have a “one warning and out” policy. Security goes to the room and asks to speak to the registered guest in the hallway away from others to ensure privacy and to isolate them from the friends who might encourage noncompliance. If the guest is reasonable and appears sober, security will inform the guest that there has been a noise complaint and explain that if another complaint is received, everyone will be evicted from the room.

In general, no liability can be assigned to the hotel for evicting anyone who is disturbing the peace or who is believed to be using the property for illegal purposes. Examples of the latter include prostitution or the use, manufacture, or sale of drugs. Evictions can also take place for drunkenness and the use of alcohol by minors.

Unsupervised minors. Many hotels have policies prohibiting renting rooms to minors. If parents rent the room on a minor’s behalf, some hotels have them sign a form that spells out the hotel’s zero tolerance for noise, parties, and alcohol and drugs, as well as the consequences for breaking the rules. The parents are also advised that they will be held accountable for any room damage or loss of revenue that the hotel incurs.

Guests in arrears. Hotels may also lock out guests who refuse to pay, as well as retain that guest’s personal property as security for payment. Procedures for this should also be in place.

Reporting Procedures

Insurers will also look at how hotels document incidents and whether they report them. An establishment should have policies that detail the process for notifying authorities of bomb threats, automobile accidents, robberies and burglaries, domestic disturbances, and other issues.

An example policy from a real hotel on how to handle the death of an individual on the property begins with instructions for hotel associates not to touch the deceased, and leave the handling of the body to first responders. Management is charged with assisting in sealing off the area, pending the arrival of municipal officials, such as a medical examiner.

The policy goes on to state that police officials on the scene should inventory the valuables and belongings of the deceased. Management, if possible, should assist with this. This inventory should be done only after the body has been removed.

At the direction or request of the police department, the inventoried articles removed should be sealed and placed in a safe deposit box (or in a secured area), with the key being given to either the general manager (GM) or assistant GM, who should lock the key in the hotel safe or secured storage pending claim by next of kin.

Senior management should complete the general liability claim form as accurately as possible, including personal observations, then follow the insurer’s reporting procedures.

Insurers like to see this level of detailed instructions, showing that an incident will be handled consistently and with the proper involvement of law enforcement officials when appropriate. That helps to ensure that an incident will not lead to other problems or claims of inappropriate behavior or cover-ups.

Emergency Response

Most lodging industry insurance policies will not cover catastrophic disasters, acts of war and terrorism, or nuclear or chemical exposure. However, hotels are held accountable for providing reasonable precautions and protections during disasters. Therefore, all hotel properties need to have both evacuation and shelter-in-place plans for possible site-specific threats, such a hurricanes in the U.S. Gulf states or tornados in the Midwest. The amount of training and the number of drills that a property has conducted are part of the information used by insurers to set rates.

Life safety, which includes fire prevention and safety, is a key element of emergency planning. A hotel with no sprinkler systems, no written fire procedures, and no regularly scheduled drills would either have to develop these controls or they would not be offered insurance.

Employee Safety

Employee safety and post-injury return to work programs are often the most effective elements of a loss control program and are definitely among the considerations for lower insurance premiums. A hotel should have clear procedures for employees to follow to prevent injuries. It should ensure that employees are properly trained on these procedures and that they understand their importance. Hotels should track data on injuries that do occur and seek to understand and remove the causes of such injuries.

In one case, a full-service hotel in Southern California was responsible for many of the parent company’s insurance-related financial losses. The majority of claims were repetitive-motion and material-handling injury claims coming from the housekeeping department—specifically, they were injuries that were incurred by room attendants.

The hotel was targeted by the corporate risk manager for loss control countermeasures such as hazard identification and mitigation training, as well as basic leadership and communication training. The improvement goal was to reduce the frequency and severity of claims by 25 percent.

It was discovered that a new executive housekeeper had been hired six months previous to the increase in claims. That supervisor was intent on improving productivity at the expense of employee health and safety. She was removed from the position.

Eighteen months later, a review showed that the property had reduced its overall claims by 42 percent and the severity of the claims by 38 percent without compromising productivity.

Another issue that the insurer’s loss control consultants will focus on with regard to employee safety is whether each property has a primary medical treatment facility nearby with which a relationship has been established by reciprocal visits and information sharing. For example, clinic staff should be shown what normal job duties are for various employees, as well as what “light duty” tasks are available to a recovering employee.

A supervisor should always accompany an injured employee to the hospital to show care and concern, assist the healthcare provider by providing pertinent information, and, where necessary, offer translation services for an injured employee who isn’t fluent in English or whatever the native tongue happens to be.

The loss control consultant will also ask whether a hotel manager stays in contact with an injured employee at least every other day they are out of work. Studies of numerous insurance companies’ workers’ compensation claims have shown that once a worker ceases to identify with his or her work group, it becomes much more difficult to get that person to return to it.

Lodging companies that follow these steps will benefit from reduced claims and reduced premiums. A company that implements all of these measures effectively can expect a rate reduction of between 15 and 20 percent.

James B. Stover is vice president of hospitality loss control for A. J. Gallagher of Houston, Texas. He is chair of the ASIS International Council on Lodging Security.