Insuring hotels and motels, with various guests and late-night departures and arrivals, makes the asset class a challenge to manage and protect. From cyberattacks to guest security, today’s hotel owners or managers face challenges when insuring their properties. A Motel 6 in Phoenix, Arizona, allegedly provided the names of its guests to immigration officials, which may cost up to $10 million, according to a Bloomberg article. It’s claims like these that cause underwriters to tighten their underwriting scrutiny when reviewing motel and hotel accounts.

How Do Underwriters Analyze Hotel and Motel Risk?

An underwriter’s first step in insuring hotels and motels is classifying the account. To classify a hotel or motel, an underwriter reviews the Standard Industrial Classification (SIC) code. For motels and hotels, that class code is 7011. However, this is a broad categorization. The SIC system broadly defines motels and hotels as “commercial establishments, known to the public as hotels, motor hotels, motels, or tourist courts, primarily engaged in providing lodging, or lodging and meals, for the general public. Hotels which are operations by membership organizations and open to the general public are included in this industry.”

Why the SIC Code is Important When Insuring Hotels and Motels

If you supply lodging and meals to the public, you’re in that SIC code. Also included, according to Richard Faber, President of Underwriter’s Resource in Arizona, are recreational vehicle parks, bed and breakfast establishments, cabins and cottages, hotels with or in casinos, youth hostels, resorts and of course, hotels and motels. Apartment hotels, which supply weekly or monthly lodging, often to business travelers, are also included in this category.

However, when reviewing the Insurance Services Office (ISO) definition of hotels and motels, here’s what you’ll find. “This classification includes motor inns, tourist courts, tourist cabins and other similar risks whose business is primarily providing lodging accommodations for transients, but this does not apply to apartment hotels.”

While the SIC code includes apartment hotels, the ISO class code does not. We will explain how ISO deals with this classification issue under Apartment Hotel Classes later in this document.

When Insuring Hotels and Motels, You’re in the “Hospitality” Class

Next, ISO divides the “hospitality classes” into the following.

  • High rise versus low rise
  • The presence of pools and/or beaches

Why this subdivision? Because high-rise hotels “Represent more complexities along life safety exposures,” according to Faber. Unfavorable life safety issues such as inadequate or faulty fire suppression systems and complicated entry and egress routes can present an underwriting challenge.

Next, the presence of a pool or beach creates more risk. The hotel or motel with water exposures presents more risk than those without.

What ISO Class Code is Your Risk?

Next,  ISO breaks down motel and hotel classes further with these class codes.

  • 45190 – Hotels or motels that are less than four stories and have pools or beaches
  • 45191 – Hotels and motels that are four stories or more and have pools or beaches
  • 45192 – Hotels or motels that are less than four stories and do not have pools or beaches
  • 45193 – Hotels and motels that are four stories or more and do not have pools or beaches

Insurers consider anything over four stories a “high rise.”

What Operations Does ISO Include in the Class Code?

ISO covers many operations typical to the motel and hotel class, including the following.

  • Room rental
  • Meeting room space, for example those spaces used for daylong events or seminars
  • Gift shops
  • Miscellaneous sales
  • Owned canoes or row boats
  • Golf cart use

As a hotel or motel owner, you should experience no added rate charges for the exposures listed above.

However, insurers do not include the activities listed below in the base rate.

  • Professional services such as spas
  • Boats other than owned canoes or rowboats
  • Gas or oil supply stations
  • Golf courses if there are separate receipts for use
  • Health or exercise facilities for charge
  • Restaurants
  • Ski lifts or tows

For these exposures, insurers usually charge an added premium.

Casinos Rated Separately

ISO classifies casinos separately. If a hotel or motel has only gambling machines such as slot machines, insurers rate that operation as an “amusement center.” That class code is 43990 and includes the operations typical of casinos, such as security operations, conventions, sports arenas and many other types of functions.

Apartment Hotel Classes

Underwriters usually consider these extended stay facilities as monthly rentals. In fact, ISO’s definition of apartment hotels allows some leeway, understanding that there will be some rentals for lesser time periods. Here’s how ISO defines apartment hotels.

“This classification shall apply only to residential hotels in which the average daily room registration is not more than 15% of the total number of rooms available for rental or lease, based upon records of the insured for the previous year.” If more than 15% of the rentals are daily, then your underwriter will rate the apartment hotel establishment as a hotel or motel.

The class codes for apartment hotels are as follows.

  • 60015 – Apartment hotels four stories or less
  • 60016 – Apartment hotels more than four stories

If an apartment hotel has workout rooms or pools, those exposures will rate separately.

Bed and Breakfasts are a Popular Alternative for Travelers

Thousands of bed and breakfast facilities are in operations in the US and abroad. The ISO class 45210 has the following definition. “A place where guests can pay to stay in someone’s home and to receive a morning meal.”

Here are more criteria.

  • The building must qualify as a residence. It must be either occupied by an owner, manager, or caretaker or has an owner, manager, or caretaker occupying a residence on the same premises.
  • The residence provides no more than 10 guest bedrooms.
  • The owner supplies guest meals at no added charge. If the owner provides guests some meals for a separate charge, then insurers rate that exposure separately with the proper restaurant classification.

Insuring Apartments or Condos Owned by Corporations

Today’s corporations often own apartments or condominiums for use by their employees or consultants. The class code developed by ISO to encompass that risk, or the lessor’s risk for vacation rentals, is 63010. This class code also can encompass the timeshare or vacation rental exposure.

Today’s underwriters understand the complexities of running a hotel or motel. However, today’s hotel and motel organizations face more claims, ranging from slip-and-fall injuries to assaults. You may lose sleep when faced with renewal proposals or when buying a new location.

Here are some tips from The Independent Agent’s Association that outlines some typical loss exposures faced by hotel and motel operators. We also cover hotel and motel risks at this link.

Give us a call. We’re happy to review your hotel or motel risk. We have ties to strong hospitality insurers who not only offer a competitive rate. They can also help you improve your risk profile with innovative loss prevention assistance.