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It is estimated that there are some 30 000 B&B or guesthouse establishments scattered around South Africa. There are just a handful of specialist insurers of these establishments who between them insure around 15% of the 30 000 – or approximately 4 500 of them. So what about the rest of them? Surely they are insured? Well some of them are with policies that don’t always do the job properly or sometimes at all.
One of the things we know is that a huge number of B&B and guesthouse establishments are operating on a personal type policy, the same personal type policy they had before they changed the home into a commercial venture. They are thus blissfully unaware of the fact that in these circumstances in the vast majority of cases the Liability insurance they carry to protect them against injury by a guest is nil!
The reason for this is because most personal policies in South Africa have a clause that removes any liability arising from a business activity. On top of this, personal policies don’t have any cover for Loss of Revenue, which can happen as a result of a great number of things peculiar to this industry. The third problem with running a B&B or guesthouse using a personal policy is that some insurers see this as a commercial venture and as a result they regard the personal policy as a “non disclosure” of a change in the risk. The result: no claim!
Some people who engage in the very exciting world of this type of business have realised the dangers and spoken to insurers, who have done their best to assist but then gone ahead and sold them the same sort of policy one would sell to the corner café or the florist shop – clearly not any sort of specialist policy for their particular industry. One of the biggest dangers is the fact that most of these policies are issued with a Liability limit of R1m or R2m or sometimes even as high as R5m. This is clearly not enough when one is dealing with possible injuries to foreign guests who earn Pounds, Dollars or Euros.
There is a school of thought that has us believing the correct limit should be based on the number of rooms an establishment has. But here again we have a problem with that idea. In a recent case, a British tourist was badly injured and awarded a very large sum, though said tourist was nowhere near a ‘room’ when the incident occurred. What should be happening is that the limit of liability should be based on the “as much as I can get” principle. Most specialist insurers of B&Bs and guesthouses start at around R30m and go up from there.
The question that many people then ask is, “How much is this all going to cost?” Most will be pleasantly surprised to find that a specialist policy is generally not as expensive as the aforementioned “general” type policy.
While it is silly to pay too much for one’s insurance it is equally silly to base a policy on price alone. It was John Ruskin who pointed out that the paying of a little to get a lot just cannot be done, and that there is no place truer than in insurance. Follow Mr. Ruskin’s advice and pay a realistic amount for the correct reason – decent insurance.
A further very important aspect of the specialist insurer is that there is usually a thorough knowledge of the type of risk in which they are engaged. They know the requirement of a burglar alarm, for example, is something very difficult for the owner of a guesthouse to have with guests coming and going. In short, they understand the complexities of the business.
So what advice then on how to go about getting the best insurance if one is running a B&B or guesthouse? The first step is to find a broker who has an in-depth knowledge of this type of insurance. The FAIS Act, introduced in 2004, calls on brokers to carry out a “Needs Analysis” for each and every client. The Act requires that brokers know the products in the market, the strengths and weaknesses of each, and provide this information to all prospective clients. Furthermore, the Act requires that the broker works very hard for every cent of his commission that some would have us believe should not be paid. The FAIS Act protects the consumer, as nothing has ever done before when it comes to insurance.
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