INSURANCE

Regardless of whether your business is in your home, on your property, around the corner, leased by you or a variation on these themes, insurance is one of the most important considerations you will have when running your Bed & Breakfast. It has the potential to protect your home and lifestyle in a way nothing else can – against the unexpected! After all, who can be properly prepared for the unexpected?

Insurance is a very simple concept. For an annual payment an insurance company agrees to provide specific cover for your building and contents and other B&B specific areas, including liability to your paying guests. Many insurers provide the facility to spread payments by direct debit but there is likely to be a charge for this.

Even if you believe you have adequate funds to replace or repair any loss that could occur, consideration must be given to investing in a suitable insurance policy.

In fact, in our increasingly litigious and varied society it would be irresponsible not to be adequately insured. Remember, as a host you have a responsibility not only to yourself and your family, but also to your guests. So what constitutes adequate insurance in your specific case? Remembering that one of the beauties of B&B is that they are all different from each other. Let us identify and evaluate the major areas of risk.

The biggest risk may be the general public themselves. You have people coming to your home or property you do not know and who do not know you. You can never guess how they look after their own possessions, so how can you know how they will look after yours?

Most B&B guests are the loveliest of people and some become life-long friends. Some, however, you will never please and you will wonder why they came in the first place. Things get broken perhaps, but no one confesses. Perhaps your lovely guest robes disappear after the guests leave. How do you handle situations like this and remain hospitable and content?

There are tricks of the trade concerning small losses and other operators will share some of these with you. Although your insurance policy should allow for claims of this nature, you may be penalised for making small claims continually. You need to realise that insurance companies are businesses as well. An insurer has the right to decline to renew a policy, or even quote in the first instance if they feel you are a bad risk, for example, if you make a lot of little claims on a continual basis.

Only you alone know your property intimately. Guests do not. In the dark, or in a strange place, people can get hurt. They don’t know the stairs are a little uneven, or the coffee table is close to the sofa because the room is narrow. Perhaps they slip on a rug on the polished wooden floor, or in the night run into a piece of furniture or fall down the stairs. You will need to look at your property through the eyes of a stranger and try to determine any potential risks. This is called risk management.

You can protect yourself against these risks by taking out appropriate insurance coverage. The word ‘appropriate’ is important as many B&Bs pay for insurance each year, but don’t have the cover they thought they had. Even worse, some do not have cover at all.

How can this be? Well, the first single most important thing to remember is that in most cases your current householders policy will not cover you. Be aware that many insurers do not insure B&Bs at all. This is not the negative it implies. If an insurance company doesn’t understand what it is insuring, it is highly unlikely it will provide you with the type of policy you will require. If in doubt, ask questions.

One of the most important conditions of any policy is the duty of disclosure. For instance, your ‘duty’ would be to inform your current insurer once you decide to have paying guests or run a business from your home. This would also extend to long- or short-term paying students and to workers. You have an obligation to advise your insurance company of this and of any alterations you make to your home. Advising an insurance company in writing about the change from homeowner to B&B owner is imperative. It provides your insurers with accurate information and obliges them to confirm or decline your existing policy. Doing this in writing also provides some protection. Firstly, you have a copy with details of when and to whom it was sent; secondly, written correspondence generally provokes a written response. This helps to protect you and substantiates basic information in the event of a dispute.

You will need to advise your insurer:

• The number of guests you have facilities for.
• What specific changes you might make to your home, for example renovations.
• Whether you have a restaurant, plan to serve morning or afternoon teas to guests or to the general public.
• Whether you will be serving or providing alcohol and any licences you may have that permit this.
• Whether you run any other business from your home or property. Many householders’ policies exclude the running of any business from their home.
• Whether you employ staff, perhaps a gardener or casual cleaning person. If you have a B&B and pay people to work for you, you are no longer a domestic situation and your domestic policy, if you have one, will not cover you.
• What sort of activities do you provide for your guests? Are you on a farm and have the guests interacting with farm animals or perhaps farm life?

Many insurers neither understand nor wish to insure B&B accommodation and will tell you that quite clearly. Some may offer separate liability policies. That may solve one aspect of your insurance needs, but what does it mean for your building and contents cover?

Perhaps they offer to cover your home under a combined domestic and business policy. This can leave building and contents with very different, and usually less cover than the cover you have enjoyed under a householder’s policy.

This combined type of insurance cover requires you to pick and choose each section of cover, for example, glass, fire, money, burglary and then pay extra for basic covers that would be automatically included in a specialist B&B policy. Buying separate liability policies is expensive and can mean you have two or three different insurance companies covering your needs. If something happens, are these providers easily able to work together or will there be problems determining who is responsible for what because of the mishmash of policies put together like a patchwork quilt? You are also likely to have an excess (deductible) under each policy – whereas only one excess is likely to apply if you have a specialist policy.

If you have a farm and already have one or other of these policies, do not assume it extends to your B&B as well. It probably won’t, unless you have specifically arranged for it to do so.

What cover do I need to I consider?

Public liability – relates to the general public in a business sense. It relates to injury and property damage caused by your personal negligence and/or business negligence. If part of your property is not well maintained and clear of debris, a guest may fall and sustain an injury (where you are proven to have been negligent -this also covers the cost of defending such claims).

Product liability – is in relation to any products you provide, but is especially relevant to the food you serve. It doesn’t matter whether you bought it from the bakery or not, should a guest find something ‘extra’ in it you are liable.

Employers’ liability – once you know that you are going to employ staff, whether full time, part time or casual cleaners, chefs or gardeners, talk with your insurance broker in detail about employers’ liability insurance. This is compulsory in the UK and may be automatically covered by your home insurance.

Buildings and contents cover – Your building and contents insurance should reflect true replacement values. If you have more than one building it is advisable you show each building and the contents of each separately. Insurance is not based on a market value or saleable value. It is based on replacing or repairing. Therefore if you are unsure it is wise to ask a builder or valuer to provide you with an estimate based on your property. Add to that a percentage or lump sum allowance for removal of debris, architect’s fees and council requirements, etc. Please bear in mind the building regulations applicable to listed properties. You should pay particular attention to ensuring that you have adequate cover.

It is possible to obtain an indication of the rebuilding cost of your property from the web site run by the Association of British Insurers (see www.abi.org.uk). There is a link under the ‘consumer’ section.

Insurers will be interested in the construction of your property. Usually standard construction is considered to be homes built from brick, stone, slate or tile. If your property is built from other materials then please notify the insurer. You should also say if any part of it has a flat roof.

Be aware that you should discuss with your builder any requirements for covering work carried out, should you need to repair or renovate. The best way to protect yourself in this respect is to employ a well known builder with a good reputation. He should carry his own insurance and be happy to show evidence of this to you.

Most buildings policies will also cover the cost of alternative accommodation for the policyholder and their family whilst the main premises is not habitable. The level of cover does vary but this could prove to be an important aspect of cover in the event of a major loss.

Other factors to consider are security, favourable rates may apply if you have door and window locks of a certain standard.

All policies will include a ‘un-occupancy period’ of usually 30 to 45 days. If your property is likely to remain empty for this period of time be aware that the cover will be substantially reduced after this period. This may be relevant to those of you who over winter in Europe.

When assessing your contents cover, have special regard for antiques, valuables and other high risk portable items such as cameras, laptops and jewellery. Some insurers may ask you to improve the security of your home (for example by fitting a safe), if these items form a high proportion of your overall cover. It is a good idea to collate a list of these and keep photographic evidence/receipts for any valued over £1,500/€2,192.

Alternative accommodation and rent – this section is likely to be a benefit of a specialist B&B policy. It will cover the additional costs you incur for alternative accommodation whilst your home is uninhabitable following a major loss. The amount of cover provided is usually expressed as a percentage of the contents sum insured but is typically around £10,000/€ 14,613.

Loss of board and lodgings – this will compensate you for loss of income for pre-booked accommodation up to a maximum amount of say £6,000/€8,768.

Guests’ effects cover – cover for your guests’ belongings.

Business equipment e.g. fax machine, computer etc.

Goods in transit – e.g. food and drink while in transport from the suppliers to your premises.

Money – cover for cash kept on your premises.

Keys – cover for theft or loss of keys.

Full theft cover – most standard household policies will exclude theft unless by forcible and violent entry.

Full accidental damage cover – your insurer must not be able to come back to you when you want to claim for a broken window or a cracked hand basin and say, ‘prove to us a guest did not do it!’

Personal possessions cover – the personal possessions section (also known as all risks) will cover your family’s portable valuable items outside of the home, and in many cases whilst travelling overseas. Do not overlook this aspect of cover.

Some policies will also include legal and home emergency helplines. The former may just provide advice on legal or contractual disputes, but nonetheless can be an important source of information. The home emergency line can be invaluable in locating tradesman 24 hours a day, particularly in an emergency. The insurers often operate panels of such people who they have previously vetted and who offer guarantees of service in return for regular work.

There are very few insurance companies who provide a B&B specific policy. Those who do generally provide this through an insurance broker. In the main, you will find this specialised cover is available as a specific scheme managed by that broker.

Don’t rely on your current insurance broker to find one for you. The best place to find out about these people is through a referral from another B&B, your regional tourist board or from one of the B&B associations. Try using a search engine on the Internet by typing in the phrase ‘Bed & Breakfast insurance’, to locate B&B insurance providers.

These insurers will still have differences between the coverage they offer and their service and involvement in the industry, but it will be specific to the B&B industry. Don’t be afraid to get different quotes and ask as many questions as you can. This allows you to make informed decisions and buy as directly as possible.

You should also be aware of paying for expensive ‘hotel’ insurance policies. They may give much wider and higher cover limits, but why pay more for cover that you do not need, e.g. neon signs, loss of liquor licence.

What additional cover should I consider?

Business interruption – If you do not have a specialist ‘package’ policy, which automatically includes this form of cover, you should seriously consider it. Following physical loss or damage to your property, there could be an interruption to your business. A serious fire, for example, may prevent you from opening your establishment to paying guests until the property has been rebuilt, redecorated and refurbished. In the meantime you will lose income but will still have to meet continuing overheads. If you rely upon the income from your B&B to live, it is essential that you have this cover.

For a claim to be met, the property must have been damaged by an insured peril. Any saving in expenses, such as food and cleaning costs, will be deducted from the amount of the claim.

You should ensure that your indemnity period is sufficient to cover your loss of gross profit until you have managed to rebuild your trade to the same level you were achieving prior to the loss. A minimum period of 12 months is recommended but for some properties (such as listed buildings), rebuilding may take considerably longer and a greater indemnity period therefore needs to be selected.

Motor vehicle insurance – Motor vehicles should be insured according to your insurer’s criteria. Let them advise you how their policy works and how your business activity will be interpreted by them.

Many insurers will provide a car for business use by the policyholder and/or their spouse for a small additional cost. However, if employees will also use the car for business, including picking up guests, this will result in a more significant increase in premium.

If you insure your vehicle for business use you may be able to claim for a percentage of the premium under your tax. You should discuss your plans with your insurer.

Personal accident and sickness/income protection – If you have enjoyed personal accident and sickness/income protection whilst in a position outside of the B&B, please keep it going. As we get older, it becomes more difficult to obtain this type of insurance. Once again, your specialists in B&B insurance will know what options they have available for you.

Find out about your insurance. It’s best not to guess – Don’t be afraid to ask questions about your existing insurance, or quotes that you obtain. Let the experts do what they do best and let them know what sorts of things concern you and just exactly what items you want to cover.

What you choose to insure, with whom, and to what value is up to you. Make informed decisions, ask questions, take your time and get it right. Remember that it is a small price to pay if something bad does happen and you will sleep as soundly as your guests – free of worry and confident in your insurance broker and your insurance policy, if you have taken the time to do it right.

Ryan Insurance Group specialise in providing one complete solution to your B&B insurance needs, their contact details can be found under Useful Addresses at the back of the book.

PAYMENT

There is no set way of handling this part of your interaction with your guests. Some B&Bs prefer to settle the account at the beginning of the stay, particularly if you do not have extras that the guest can choose during their stay, while others keep to the traditional way of paying at the end. It is your establishment the way you run it is up to you.

Either way, you will need to present your guest with an itemised account, retaining a duplicate yourself. This could be in the form of a handwritten invoice, which you can buy from your local stationers, or a computer generated account on your letterhead where you can store your record on disk.

METHODS OF PAYMENT

There are many different options for payment and you will need to decide which you will choose to accept. You might like to discuss your options and the positives and negatives of each with your financial adviser and bank manager. It is a good idea to show your payment options on your promotional literature.

Cash

This is the best option for any business because of the cleared funds aspect to cash. The only negatives are that you may be charged a small deposit fee and you will need a safe to store the money until you can go to the bank.

Cheques

Many establishments choose not to accept cheques, however, many of your guests will expect this facility. Some guests may wish to pay by personal cheque either in local currency or in foreign currency. If you accept cheques in foreign currency make sure the amount on the cheque covers the costs of converting the cheque into local currency.

This method of payment is not recommended because personal cheques can be ‘stopped’ or ‘returned’ for varying reasons. If a personal cheque is returned it will mean that you the B&B owner would be out of pocket for the duration of the stay that the payment originally covered. If you do accept cheques, then be sure to view the guest’s cheque guarantee card or driver’s licence and record the guest’s details on the reverse side of the cheque. Ensure any alterations are initialled and the cheque is not post-dated.

With the spread of cash machines it is reasonable to assume that cash or credit card usage will be the favoured method of payment.

Credit and debit cards

The financial size of your establishment will probably make the difference as to whether or not you choose to accept credit or debit cards. Many of your guests will want to settle their account by this method as this is the payment revolution of the 21st century. We use it to access our accounts to pay for petrol, groceries, pharmaceuticals, in fact almost everything you can think of.

If you choose to go down this route there are a few things you will need to do. Firstly you need to apply for merchant card status from your bank. For the privilege of using their service you will pay a commission of around 2% of the face value of the payment. You will be given a floor limit, which usually equates to the charge of your cheapest night. Any charge after that will require an authorisation number. When applying for merchant card status be sure to have a telephone facility. This will allow you to take a non-refundable deposit. The hardware required is multi-functional in that it accepts both credit and debit card transactions.

It works via modem-based technology. The set up costs, excluding the multi-functional hardware, could be quite expensive, but is worthwhile if your property is a large guest house. Talk to your bank manager about the costs.

Traveller’s cheques

Overseas guests are the most likely to use this form of ‘currency’ instead of credit or debit cards.

If in English pounds or euros it is as good as cash, but traveller’s cheques in foreign currency will require you to convert and to add the conversion service fee the bank will charge you. This can be quite problematic because your bank must be comfortable accepting and negotiating third party cheques, and this could be costly. Again, discuss this type of payment with your bank manager first. You will need to ensure the traveller produces suitable identification, e.g. a passport, and signs the cheque in front of you.

Foreign currency

If you choose to accept this you will need to convert the foreign currency into your country’s currency and add the service fee the bank will charge you. Be aware that banks factor in a 4 to 5% margin, plus a fee for accepting and converting foreign currency. You must ensure you get the exchange rate from your bank. Get the money to the bank that day, otherwise you may lose money on the transaction if the exchange rate changes. Try to encourage your guests to change the money themselves.

Online payment solutions

PayPal has a program that enables anyone with an email address to easily send and receive secure payments online. PayPal is an eBay company, specialising in online payment solutions with more than 86 million account members worldwide. They operate in 56 countries and support six currencies – Australian dollars, euros, US dollars, pounds sterling, Canadian dollars and Japanese yen. They claim that their program uses very good commercially available encryption technology to ensure that all financial information is never shared with buyers or sellers.

Pre-paid vouchers

One form of payment, which you may have to think about, is the pre-paid voucher. Many tour operators and other agencies issue these to their clients who then hand them to their B&B host in exchange for a night’s stay. The accommodation may be pre-booked for an additional fee, or on a go-as-you please basis.

This arrangement has to be formally agreed months in advance. The B&B host normally posts the voucher to a local agency, acting on behalf of the company which issued them. Systems can vary from company to company and there are usually additional agreements about supplements for extras of one kind or another such as children sharing ‘superior accommodation’, which must be paid directly to the host by the guest on the spot.

You may be approached individually about this type of business or it could be one of the many options open to you as a member of a consortium or B&B association. Either way you should discuss it fully with others already in the system before committing yourself. There is normally no cost involved for those agreeing to participate in voucher transactions. However, there may be a commission payable at some stage in the process. Check with your voucher issuer for their procedure.

Travel agents are encouraging clients to purchase pre-paid accommodation vouchers before they leave home. This has resulted in an increase in the use of vouchers. The B&B voucher business is big and growing, especially where the Bed & Breakfast hosts are well organised and belong to their own associations. This is particularly the case throughout Ireland where a truly vast B&B voucher business has been painstakingly built up and finely tuned over the past 30 years or so.

The flexibility of B&B voucher programmes is very appealing to international visitors travelling around the UK and Ireland. Discover Travel & Tours is very well known within the international travel trade and is always looking for quality B&Bs, inns and guest houses to join their programme – see their contact details under the ‘pre-paid voucher’ heading in the Useful Addresses section.