Management of a motel entails various activities related to commercial property management, hospitality, accommodation, and business management in general. The risks faced by the operators of motels are more complicated compared to those in any other commercial property.
For motel owners and operators, the challenge is not simply arranging insurance. It is ensuring that the insurance program reflects the property’s actual replacement cost, the business’s revenue exposure, guest-related liabilities, operational equipment, additional facilities and contractual obligations.
A well-structured motel insurance program should therefore be reviewed as the business changes rather than treated as a once-a-year administrative exercise.
Property Risks Require More Than a Building Sum Insured
Motel physical premises may include rooms for guests, reception area, offices, kitchens, restaurants, laundry areas, outdoors, signs, storage areas, and many other buildings.
The cost of restoring the property after a significant property loss is not limited to just the cost of the actual building. There may be additional costs associated with demolition, cleanup, professional fees, compliance, labor, materials, and reconstruction.
Motel owners should periodically reassess their property values, particularly after:
- ● Renovations or extensions
- ● Changes to building use
- ● Major improvements
- ● Installation of new facilities
- ● Significant increases in construction costs
- ● Acquisition of additional property or equipment
Using outdated property values can increase the risk of underinsurance when a significant loss occurs.
Guest Liability Is a Major Operational Exposure
Unlike many businesses, motels routinely invite members of the public onto their premises and provide accommodation for people who may be unfamiliar with the property’s layout and facilities.
Potential liability exposures can arise from common areas, walkways, car parks, stairs, bathrooms, swimming pools, recreational facilities and other areas accessible to guests.
Risk management should therefore extend beyond insurance. Motel operators should maintain appropriate inspection, maintenance and incident-reporting procedures and ensure that hazards are addressed promptly.
Public Liability Insurance can respond to certain legal liabilities for personal injury or property damage to third parties arising in connection with the insured business, subject to the policy wording.
The appropriate liability limit should be considered in light of the motel’s size, location, facilities, visitor numbers and contractual requirements.
Business Interruption Can Be as Important as Property Protection
A major property event can affect a motel in two ways: it can damage physical assets and prevent the business from operating normally.
If guest rooms become unavailable following an insured event, the motel may lose accommodation revenue while repairs are being undertaken. Additional expenses may also be required to minimise the interruption.
Business Interruption Insurance can provide cover for certain financial losses resulting from an insured interruption, depending on the policy.
Motel owners should pay particular attention to the indemnity period. The period selected should reflect the realistic time required to repair or rebuild the affected property and return the business to an appropriate level of trading.
Factors such as planning requirements, building approvals, contractor availability, material shortages and specialist equipment can extend the recovery period.
Seasonal Revenue Should Be Considered
Motel revenue may fluctuate significantly throughout the year due to holidays, tourism, local events, business travel and seasonal demand.
This creates an important consideration when calculating business interruption exposure.
Using a simple annual average may not always accurately represent the financial consequences of an interruption occurring during a peak trading period.
Motel operators should consider historical trading patterns, occupancy levels, seasonal demand and expected future growth when reviewing relevant financial information for insurance purposes.
Accurate financial records can also make it easier to substantiate a claim following an insured interruption.
Protecting Contents, Fixtures and Operational Equipment
A motel’s operational assets can represent a substantial investment. These may include beds, televisions, refrigerators, air-conditioning systems, furniture, kitchen equipment, laundry machinery, computers and other equipment.
The cost of replacing multiple items following a major insured event can quickly become significant.
Motel operators should maintain an up-to-date asset register identifying major equipment and contents, including replacement values where appropriate.
Particular attention should be given to equipment that is essential to maintaining operations. Damage to refrigeration, laundry, air-conditioning or commercial kitchen equipment may affect guest services even where the main building remains usable.
Additional Facilities Can Change the Risk Profile
Many motels offer facilities beyond accommodation. These may include:
- ● Swimming pools
- ● Restaurants
- ● Bars
- ● Commercial kitchens
- ● Conference rooms
- ● BBQ areas
- ● Recreational facilities
- ● Laundry services
- ● Large car parks
- ● Outdoor entertainment areas
Each additional facility can introduce different operational and liability exposures.
For example, a swimming pool may require specific maintenance and safety procedures, while a commercial kitchen introduces additional equipment and property risks.
Insurance arrangements should reflect the actual activities undertaken by the business. Changes to facilities should therefore trigger a review of the existing insurance program rather than waiting until the next renewal.
Theft and Security Considerations
Motels can hold valuable business assets, cash, electronic equipment and other property. Security risks may arise from burglary, theft, unauthorised access or employee-related incidents.
Insurance may provide protection for certain theft-related losses, depending on the policy and circumstances.
However, appropriate physical and procedural controls remain important. Motel operators should consider access management, surveillance systems, secure storage, lighting, key management and procedures for handling cash and valuable equipment.
Insurers may also require businesses to maintain particular security measures as part of the policy conditions.
Cyber Risks Are Increasingly Relevant to Motel Operators
Modern motel operations often depend on digital systems for reservations, payments, customer records, accounting, websites and communication.
A cyber incident affecting one of these systems could disrupt normal operations and potentially expose sensitive information.
Cyber insurance may offer coverage for some specific aspects of a qualifying cyber event, subject to the terms of the insurance plan. These possible coverages may include, but not be limited to, incident response, forensics, data recovery, interruption of business and some third-party liability coverages.
Cybersecurity controls that motels should consider implementing include multifactor authentication, access control, backup, patch management and employee education.
Commercial Motor and Other Business Assets
Where a motel owns vehicles used for business purposes, commercial motor insurance may need to form part of the broader insurance program.
Vehicles used for maintenance, deliveries, transportation or other business activities can create exposures that differ from private vehicle use.
Similarly, trailers, specialised equipment and other mobile assets should be reviewed to determine whether they require separate insurance arrangements or can be appropriately addressed under existing policies.
Lease and Contractual Obligations
Motel businesses may operate from leased premises or under management and operating agreements. These arrangements can contain specific insurance requirements.
A lease or contract may specify requirements relating to:
- ● Public liability limits
- ● Property insurance
- ● Glass
- ● Business interruption
- ● Interested parties
- ● Evidence of insurance
- ● Indemnity obligations
Motel owners and operators should review these requirements carefully and ensure that their insurance program aligns with the contractual obligations.
Importantly, contractual requirements should not automatically be treated as an indication that the policy provides broader cover. The actual policy wording remains critical.
Underinsurance and Declared Values
Underinsurance remains one of the key issues motel owners should consider.
Property values can change significantly over time, while the cost of construction, materials, labour and professional services may increase.
Business interruption values can also become outdated when turnover, occupancy rates, operating expenses or business plans change.
An annual insurance review should therefore consider:
- ● Building replacement costs
- ● Contents and equipment values
- ● Stock
- ● Annual turnover
- ● Gross profit calculations
- ● Payroll
- ● Increased costs of working
- ● Indemnity period
- ● Liability limits
- ● New facilities or services
A significant business change should prompt an insurance review rather than waiting for renewal.
Risk Management and Insurance Should Work Together
Insurance should be viewed as one component of a broader risk management strategy.
Motel operators can reduce the likelihood or severity of incidents through regular property inspections, preventative maintenance, staff training, documented safety procedures, emergency planning and cybersecurity controls.
Maintaining records of inspections, maintenance and incidents can also be valuable when managing an insurance claim.
The objective is not simply to purchase more insurance. It is to establish an insurance program that is proportionate to the motel’s actual exposures and supported by appropriate risk controls.
Reviewing Motel Insurance as Your Business Evolves
Motel insurance should evolve alongside the business.
Acquiring another property, adding a restaurant, renovating rooms, installing a swimming pool, changing the business structure, increasing turnover or introducing new technology can all change the underlying risk profile.
A policy that was appropriate several years ago may no longer adequately reflect the current operation.
Regular reviews with an insurance broker can help identify changes in exposure, reassess sums insured and consider whether additional or different covers may be appropriate.
Conclusion
Motel owners face a combination of property, liability, operational, financial and technology risks. Effective risk management requires more than simply insuring the building.
From accurately assessing replacement costs and business interruption exposure to considering guest liability, equipment, additional facilities, cyber risks and contractual requirements, each component can influence the overall insurance strategy.
A carefully reviewed motel insurance program can help businesses manage the financial consequences of certain unexpected events, subject to the applicable policy terms, conditions, exclusions, limits and excesses.
Motel owners should regularly review their insurance arrangements, particularly following significant changes to their property, facilities, turnover or business activities.
Auswide Insurance Brokers can assist motel owners in reviewing their insurance requirements and considering insurance solutions suited to their individual circumstances. Business owners should review the relevant Product Disclosure Statement and policy documentation and seek professional advice before making insurance decisions.