The KKNK, a well- known national Arts Festival started on Saturday in Oudtshoorn. Our neighbours decided to give the Festival a skip this year and headed off to Europe for a brief vacation. They decided to rent out their home to a production team from Cape Town and it appears that the new inhabitants are having a ball!
On Sunday morning at 1h30 am the music and laughter still kept not only us awake but also the neighbours on our other side. We can only hope that keeping the neighbours awake at night is the only damage to be caused...
What do we need to know about renting out the house and what is the effect on home and household insurance?
It is important to remember that the home and household insurance policy is an agreement between you and the insurer based on specific facts on which your risk profile is calculated. It is also your duty to inform the insurer of facts or changes that might alter your risk profile.
With this in mind I approached a few of the experts from OUTsurance with questions about what to do when you consider renting out the house:
Should you be the insured policyholder for home and household insurance – would you need to notify the insurer of such an event?
You would need to inform your insurer about this as it is a material change to the risk and thus the cover that is applicable.
The chances of us covering this occurrence is very slim as the risk is so much greater with strangers being in the house and having unlimited access to all parts of the property.
When does the need arise...if it does arise… to inform the insurer that someone else is living in the house?
Whenever there is a change such as the example above, the insurer would need to be informed.
The example above would be treated very differently from an instance of a friend housesitting.
However all material changes should be referred to the insurer for a decision to then be made on whether there is cover or if there are restrictions on cover.
When does your home and household insurance policy become more of a business insurance policy – such as that of becoming a guesthouse?
Usually where there is a room being let out in the property with the person sharing common ground with the family such as meals and tv room etc, the house is a guesthouse. This can still sometimes be covered under the client’s personal policy.
It is best though when there is a change such as a room being let, that the client call the insurer to determine if there is going to be a change and if the policy should be changed to a business policy for full cover.
Conclusion
It is always best advice to communicate with your insurer or broker and to avoid any assumptions and uncertainties. Even though the insurance premium might remain the same, both you and the insurer will have peace of mind that there is always a full disclosure of all the material facts to the insurance cover provided.
As home owner also be aware of your obligation to inform the inhabitants of the home of the required security measures such as alarm systems that may need to be switched on when they leave the house!
The kitchen is very often the heart of the home. It’s a place where laughter is shared, feasts are created and families unite. According to environmentally-friendly insurer, ibuyeco, the kitchen is also one of the best places to start reducing your environmental impact.
Bradley Du Chenne, spokesperson for ibuyeco says: “Transforming your kitchen into an eco-conscience one is neither costly nor complicated. In fact, by doing so, you can actually save money.”
ibuyeco offers tips on making the transition to a more environmentally friendly way of life:
• Use the dishwasher instead of hand washing. As counter-instinctual as this may sound, a dishwasher uses only half the energy, 37% less water and less soap than hand washing dishes does. However, if you fill up one sink with water for washing, and another sink for rinsing, as opposed to letting the water run, you will use half the water a regular dishwasher uses.
• Choose an oven with a self-cleaning option. Whether gas or electric, self-cleaning ovens have higher levels of insulation, resulting in more efficient cooking.
• Replace appliances with energy efficient models. Although you may have to pay a bit more for new fridges, freezers, washing machines and tumble dryers, the cost should be recouped through the reduction in your energy bills. Energy efficient models need less electricity to do the same job as older appliances.
• Reduce the number of unnecessary gadgets. A quick scan through your kitchen cabinets would reveal dusty gizmos that are probably never used. You can pass these on to somebody who might otherwise have bought new appliances, therefore saving emissions from the energy needed to make, transport and package the item.
• Do not use Teflon-coated cookware. Some of the chemicals used in Teflon are toxic and have been linked to female infertility and flu-like symptoms in people when heated in an enclosed area. Scratched Teflon pans are considered to be a potential health hazard.
• Wash only full loads. This makes your washing machine more efficient, saves energy from doing one wash instead of multiple, smaller washes, and also reduces the amount of washing powder you use. Also, choose a lower temperature for the cycle.
• Make use of SA’s bright sunshine. Tumble dryers consume huge amounts of energy, and as a result, add considerably to energy bills. Try drying clothes on a washing line during sunny or windy weather, or on drying racks in your home.
• Recycle or reuse old pots and pans. Donate your old pots and pans to a charity, as this will extend their useful life and keep them out of landfills.
“These suggestions can greatly help you make your living space more environmentally sound. Just attempting a few of these tips will help you achieve a greener lifestyle that can be passed on for your children and their children to enjoy,” concludes Du Chenne.
Has someone succeeded in defrauding your restaurant, guesthouse or hotel? There are many fraudsters trying to defraud through online payments and pre-bookings. We would like to share two emails sent to the Arrive Alive website:
Example 1
“My name is Peter.A.Purdon from M&G Investment International. I want to know if there is any availability for 5 guests coming for Business meeting that needs rooms, apartments services if possible. They are coming for visit in your city. If there is availability, kindly let me know about the dates and the quotes.
They are looking forward to Arrive on 20th of October 2011. The ONLY mode Of Payment is :Visa , Master or Amex Card.
Write me immediately with an update on the list of all the services you can offer and available at that time. Call me anytime.
Director: Peter.A.Purdon
M & G International Investments UK
233 Wale Street, London EC2V 7HN
Phone: + (44) 704-5768990
Example 2:
“My name is Robert Smith I will like you to offer 4 of my Clients with Accommodation at your Place and Meanwhile their bookings details listed below
ROOM TYPE:4 Standard Rooms
Check In: 10Th /11/ 2011
Check Out:16Th /11/ 2011
Duration Of Stay 6 Nights
GUEST NAMES:
JAMES/COLLINS/MR
LONGMAN/CASTROL/MR
RICHARDS/EWARDS/MR
GRACE/HAMMER/MRS
Kindly let me know the total cost for the 4rooms rooms for 6 nights and full Payment would be made in advance via credit cards (MASTER CARDS or VISA CARDS).
I await your soonest reply and look forward to building an strong business relationship with you.
A visitor to the above website provided the following method:
“How it works is they ask you to put a deposit on their credit card through “your restaurant”. They ask that you charge the credit card $9000 but then take $7000 and give it to a local car company. Once you process it you will be contacted by your bank and YOU become liable for the total $9000 that is charged to the card as it is a stolen credit card and the transaction will be reversed!”
Insurance might not cover loss/ damage from these fraudulent transactions
I raised this with OUTsurance and enquired whether insurance would cover such losses. I received the following response:
“We do not offer any product to cover losses such as these and believe the responsibility relies on the person/business involved to ensure they are participating in valid transactions prior to making any payment.”
Does OUTsurance alert clients to these and other scams as they become known?
“This is not something we have done and because it is often difficult to differentiate between valid threats and spam mails, it is not an option we will presently be involved in.”
How can owners/managers of hospitality establishments protect themselves?
I discussed this with Anthony Lamont Smith, Revenue & Yield Manager at the Balalaika in Sandton, Johannesburg. He emphasized the importance of not operating in isolation but also sharing insights with others in the industry.
In Sandton the managers of several departments in hotels meet regularly to discuss experiences and risks. These include revenue managers, food and beverage managers, security etc. This allows them to alert one another to specific incidents and trends in criminal activity, bad payers, bad behaviour etc.
We would like to urge managers and owners in the hospitality industry to join in the battle against fraud and to share their experiences with others who might fall victim to these scammers!
Are you doing the right thing at the right time when selling your Guesthouse? Many owners spend years building a reputable business only to regret selling that business after the transaction has been completed.
On Insurance Chat we have shared some advice by Colleen Seabell from Guesthousesale.com. We would also like to share her advice to the potential seller of a Guesthouse, Boutique Hotel and Bed and Breakfast.
What are the major pitfalls you have found in your experience for the potential seller of a guesthouse?
Sometimes sellers have sold in haste and do not check what financial payment will become due. An example would be capital gains tax. If they consult with a tax expert before selling, the potential pitfalls become apparent and the tax expert will advise them correctly.
Also what sometimes happens is the sellers have become completely attached to their guesthouse and when they sell they regret selling. Especially when the buyer moves in and starts ripping walls down or ripping plants out that you work for years on establishing. Once you have sold, move on and don’t go back.
Another big potential pitfall for sellers is that they accept an offer and think that they have sold only to find out that the banks do not give funding! This is a big disappointment to a seller that has moved on in his/her head. I advise all sellers to put a 72 Hour meet or beat clause into any offer that is subject to finance so that if you do get another offer that is not subject to finance you can accept it and are not tied down for the period stipulated on the offer.
Also do not stop marketing your property for sale if it is subject to finance. Probably close to 90% of the offers that are subject to finance do not work.
What are the secrets to buying a guesthouse or Bed and Breakfast? Are there hidden perils or warning signs we need to be aware of? In an earlier post we advised that the buyer consult with an expert before signing the purchase agreement. But why? In this post we would like to continue our discussion with Colleen Seabell, an expert in the buying and selling of guesthouses and other hospitality establishments
What are the most important questions for the potential purchaser to ask?
1. What is the profit after all the costs? – and then work out what money you need to get by and how much will you have for a bond. You will then be able to work out how much you need as a down payment.
2. What is the zoning on the property? Can you run the business from it?
3. How much marketing is done on the guesthouse and where do the clients come from – website, booking systems, etc. This is important because once you take over the guesthouse you have to keep up with this marketing and you have to make sure that you know how to do this marketing. If it is the website, make sure that you know about websites and how to keep on marketing on the website and if not then make sure that you learn. Business does not come from sitting around and hoping that someone finds you.
4. What is included in the sale and make sure that you have a writing inventory that is accepted by both parties.
5. How am I going to buy the property and the business? Do I buy it in a company, privately, etc. Consult with a tax consultant on the best way of proceeding. Every circumstance is different so there is not rule of how it should be done.
6. Which are the busy months so that you know which months you need to provide extra money for?
7. Which of the staff members stay? Have they been paid all the benefits that are due to them before the buyer takes over? You do not want to be landed with any unpaid leave pay, leave time, pensions or retrenchment packages.
8. Are you buying through agent’s that know the correct documentation to use and that will look after everyone’s interests and not only 1 party.
Room with a view in Knysna
Are there specific legislation or industry bodies that the purchaser needs to be aware of?
Not really. They should make sure that the property they are buying has the rights to be run as a guesthouse. I think that because of the talk of hospitality properties being taxed more than regular properties, the rules might become a little stricter than they are at the moment. Hospitality properties will probably be more scrutinised because of the possible additional income that the local municipalities could claim.
Which documentation would you request to be disclosed?
Financials, zoning on property or the guesthouse departures on the property, the title deeds on the property to make sure that there are no restrictions that could affect your business.
Would you require financial statements and data – and over which time frame?
Yes, but give the seller enough time to get these drawn up because I have found that mostly the sellers are not up to date with the financials. This is not the rule because some sellers are very much up to date with their figures. You should put a due diligence into your offer to purchase so that you can get all the documentation you need to make sure that the business and property is what you expected. The normally for a due diligence is between 10 to 14 days. [Ask for statements over 3 years if possible.]
Should the purchaser rely only on the documentation alone or should he do some other homework?
If he deals with a reputable agent that knows what they are doing, they should have the required information in the offer to purchase agreement but the seller should ask for what ever they feel they need to make an informed decision. If the purchaser is bothered by anything, do what you have to, to find the correct information.
How important is “grading” by tourism authorities in the process of selling or buying a guesthouse?
Buyers often think that this is important but it is not unless you want a 5 star establishment. What you do to the guesthouse is what is going to get you the grading. Often all it takes to turn a 3 star into a 4 star is adding some appliances into the room or putting a fridge behind a cupboard or just cleaning up a little better than the original owner. This of course makes a difference if you want a 5 star establishment because the size of the room counts and the bathrooms count. If you do not have this in the rooms to start with, the costs could be exorbitant.
Which aspects should the buyer investigate for himself with reference to the reputation of the business?
If the establishment has a bad reputation but you are able to buy at a good price and know how to market, buy the guesthouse but change the name unless it is very well established and has a strong website. Then just change the marketing and let the previous clients know that it is under new management and the attitude of the new owners has changed. On the other side, if the guesthouse has a good reputation, try to move into the position of the seller and be a little less aggressive with letting people know that there are new owners. Clients come back to where they have had a good experience and this is sometimes because of the owner’s attitude toward their guests.
What are the major pitfalls you have found in your experience for potential purchasers?
Over-extending themselves. Don’t get yourself into financial difficulty by buying beyond what you can afford. Rather buy where you can afford and work on the marketing to make the guesthouse better so that you can reap the profits of your hard work. Don’t work hard just to pay off a large bond. You will get into financial trouble.
How important are existing employment contracts and service provider agreements in the buying of a Guesthouse or B&B?
Enjoying South African Hospitality
Very important especially if you need the staff to carry on working for you. I always suggest that when new owners take over the guesthouse, they re-negotiate the employment contracts so that there is clear understanding from all parties. With regard to service provider agreements, these all have to be renewed when there is a new owner because the account details change but the buyer has to remember that telephone numbers have to be transferred, DSTV and MNet machines have to be signed over to the new owners otherwise they can not change the accounts, codes for different websites have to be handed over, etc.
Would you advise the purchaser to request the claims history on the guesthouse insurance policy?
This would be a good idea to see what has been claimed for in the past and what problems there have been.
Any additional aspects you would like to alert the potential buyer to?
Make sure that you are buying in an area that you want to be in. If you are expecting 4 star clients make sure that the area is right for a 4 star guesthouse. If you want corporate clients, make sure that the area will attract corporate clients. If you want to specialise in golf tours, make sure that you are buying close enough to golf courses and that the travelling times put the traveller off.
If anyone has any other questions or needs some advise, please feel free to contact me.
Do you need any specialized skills and knowledge to start a guesthouse, a B&B or a Boutique Hotel? Do you believe that your ability to prepare a decent meal or the availability of extra rooms at your residence will guarantee success in the hospitality industry?
Many have been left distraught and with hefty bills after “trying their luck” with these hospitality establishments. We have previously alerted visitors to this blog to the insurance perils facing the owner of a guesthouse and decided to provide some important advice to those interested in starting such a business.
My brother, a Tax Consultant in Cape Town, referred me to Colleen Seabell, an expert in the buying and selling of guesthouses and other establishments, and she kindly responded to my request for more detailed information.
We would like to share some of the questions raised and responses received. I believe that this will assist many potential and existing buyers and sellers of guesthouses. We will do so in 3 seperate posts.
Could you perhaps give a brief description of your business and how long you have been in the guesthouse industry?
I have been in the business of specialising in selling guesthouses and hospitality properties for around 4 years now. I used to sell regular properties and was approached on a regular basis to sell guesthouses and B & B’s because I used to be in the tourism industry and had contact with guesthouses. When I tried to sell them I realised that there was so much more to selling a guesthouse than a regular property. It is completely different because you have a business and a property and you can’t use a regular property agreement to conclude the sale. Please excuse me if I refer to only selling a guesthouse because I mean to include B & B’s, hotels and backpacker establishments in this as well. For ease of not naming them all every time, I do mean to include all hospitality establishments.
Why do you believe it is important to approach an expert in the process of buying or selling a guesthouse?
The person that you deal with has to know about what is involved in selling hospitality establishments. When a buyer is taking over the business they need to know that they will have everything included with the sale so that they do not have to start the business all over again. If this is not stipulated in your sale document, you might not be getting what you are expecting. You need to know what is included. Do you get the business, website/s, stock, movables, etc. The buyer also wants to know that they will not be liable for any debt once they take over. The seller also wants to make it clear that once the buyer takes over, they are not liable for any debt once they are no longer the owners. There is a lot that is overlooked by a regular agent simply because they do now know what is involved in selling a hospitality property. Vat also becomes a big issue when a sale is done. Do you pay Vat or transfer duty? You have to know what you are doing.
Are you sometimes asked for a referral to, or would you advise the potential buyer/ seller to consult with a financial planner, tax consultant or lawyer in the process?
Yes, I am sometimes asked to refer a buyer and sellers to a conveyancing attorney but not often to a financial planner or tax consultant. As far as I am concerned, the buyer and the seller should be consulting with a tax consultant when they buy and when they sell. If they consult with a tax consultant right from the beginning will be buying the right way from the outset. You are buying a business and with this business comes a valuable fixed asset. If you set up correctly from the get go, your future business and future sale will be that much better. Foreigners are especially vulnerable and should consult with a tax consultant.
What are the most significant differences in your experience between the purchase of a guesthouse in comparison to the purchase of any other small business?
One of the things that purchasers expect when they buy a guesthouse is that the income will sustain a large bond and be able to give them a good income as well. This is not the case. A purchaser has to remember that they are buying a house firstly and by the way, we have some additional rooms that we can get an income from. You will not be able to pay a large bond and have a good living from the income. This is where a lot of people got into trouble in the past when the banks were more generous with loaning money. They were giving large bonds of over 100% and many owners got into financial difficulty. The banks have changed now and will not give more than 80% and they will only give 80% if the purchaser is able to pay this bond in their personal capacities and not from the income of the guesthouse. Even 80% is very high because this puts big pressure on someone that wants the income of the guesthouse to pay the bond. Try to keep the bond as low as possible. When you apply for finance on a regular business you normally get a commercial bond and the banks look at the business being able to pay the loan.
What are the most important differences you have found in lack of awareness between the first time and experienced buyer of a guesthouse?
First time buyers think that they can apply to the bank for a large loan and that they do not need any deposit. The banks will not look at any application with less than 20% as a deposit and they want to see working capital in addition to this minimum deposit. First time buyers also think of guesthouse as a glamorous business. They have to remember that it is a 365 day job that has people arriving at any time of the day or night. Once someone has been in the business for more than 5 years it seems to get into their blood. I have had many people that sell, come back into the industry a few years and wanting to buy another guesthouse. On the opposite side I have had buyers wanting to sell after 6 months because of not knowing what they were getting into.
What are the benefits of rather buying a guesthouse than buying a property and starting a guesthouse from scratch?
It takes years to establish a business and build up a client base. People think that they will save money buy buying a property and converting into a guesthouse. They do not take the cost into account of building up the business, building up a website that gets onto the first page of google, the cost of getting repeat clientele, etc. The lower cost of buying a house as opposed to an established guesthouse is far outweighed by the empty beds over the years and the cost involved with getting the zoning on the property and the bums in beds. Don’t be fooled by the lower cost of a regular house. It costs money to build up a business and years of experience and money to figure out where your clients will come from. The seller has already carried all the cost and work out the right way. You as the new owner only needs to build on this work that has been done. New ideas can only improve on the income.
Do you sit down and address with the potential buyer his reasonable expectations?
Yes! His is also done so that we both have an understanding of what the other wants. If he is someone from Johannesburg that wants to buy in Cape Town, the buyer needs to know that what your money can buy in Johannesburg is completely different to what your money can buy in Cape Town. Your money will buy you far less in Cape Town. The guesthouses in Johannesburg generally also have a better income according to what the asking prices are. Quite often the buyer is also not sure about the area and I try to give them ideas of the different areas. It is sometimes better for someone to rent in an area before they make the decision to buy. I also make it clear to the buyers that banks are very difficult to get money from and that they need a good cash injection. Expecting to get a big loan from the banks is not going to happen.
London riots in image that appeared on The First Post
There has never been a worse time for unnecessary damage to property than right now! During the past week on television we did not only witness a very important downgrade in credit rating for the United States , but also extensive damage caused by riots and plundering in London!
In this challenging time for the global economy many small business owners are trying to keep head above water and are cutting down on unnecessary expenditure. We can only hope that they did not neglect to maintain their business insurance policies and remained protected from these unforeseen risks!
British insurers will face a bill for “tens of millions of pounds” after three nights of rioting destroyed vehicles, homes and businesses in at least six London boroughs and three other cities.
“Most commercial insurance policies will cover businesses for damage to their premises, including the interruption to their business as a result,” Nick Starling, director of general insurance at the Association of British Insurers, said in an e- mailed statement to Bloomberg.
On Twitter well known restaurateur and food expert Jamie Oliver tweeted the following “sadly my restaurant in Birmingham got smashed up windows all gone whole area closed, can’t open staff and customers all safe! Thankfully jox”
It has been reported that shop and homeowners in the London boroughs of Lambeth, Hackney, Lewisham, Newham, Tower Hamlets and Croydon, as well as the cities of Liverpool, Birmingham and Bristol were among those who suffered damages from the riots
“It is too early for us to have an accurate picture of total costs, especially business interruption costs, but insurers are working hard to deal with claims coming in,” Nick Starling, director of general insurance at the Association of British Insurers, said. Starling also commented that home insurance policies should cover customers for fire, looting and damage to property.
Aviva Plc (AV/), Allianz SE (ALV), Axa SA (CS), RSA Insurance Group Plc (RSA) and Zurich Financial Services AG (ZURN) are the U.K.’s five biggest commercial property insurers, according to the ABI. Typically policies cover fire and damage to property, said Bill Gloyn, a real estate insurance broker at Jardine Lloyd Thompson Group Plc. (JLT)
“Almost all commercial property is insured on an all-risk basis, so it doesn’t matter one way or the other what the cause of the damage was,” he said.
Smaller business may not be covered for looting as often insurers ask them to pay extra for theft insurance, according to Gloyn. Insurers may also question how well protected unoccupied properties were during the riots, he said.
What do business owners need to know about damage from riots?
Uninsured business and homeowners may be able to claim for damages if the events of the last three days are classed as a riot under the Riot (Damages) Act of 1886. Insurers may also be able to recover money under the legislation, the ABI said. As part of the Riot Damages Act, insurers need to take action within a certain period of time in order to claim back costs themselves so it is important to notify them as soon as possible.
Business owners should contact their insurers without delay to ascertain the correct processes to follow and to make a claim.
“A claim must be made to the police force within 14 days, so it is important that all business owners act promptly,” according to Daniel Barnett, a barrister at Outer Temple Chambers in London.
Some insurers will have a list of companies you should use to carry out repair work. Alternatively they may give you a cash advance to help cover costs, so it's worth informing them of damage before you start paying for new windows or locks.
In terms of contents insurance, you will need to quantify your losses: list everything you've lost or that's been damaged and how much it's worth.
With all insurance types you will need to get a crime reference number. Understandably, this may be difficult to get immediately from the police so contact your insurer in the first instance.
The consequences of riot action and damages will unfortunately include increased pressure on affordability of insurance premiums. Insurance rates in affected areas may increase and insurers may require businesses to add extra protection and security measures such as metal shutters etc
[Information with credit to info from Bloomberg and Moneywise]
Guesthouse Insurance policies should always reflect the needs of each individual scenario - Insurance is never about a "One size fits all" approach. We have earlier discussed the numerous perils facing the guesthouse business but how would this be addressed within a policy for a Guesthouse, Bed and Breakfast or Boutique hotel?
We decided to raise these and other questions with an experts from Outsurance, and believe that the very detailed and comprehensive response will contribute to a much better understanding of the insurance requirements for anyone running a Guesthouse, Bed and Breakfast or Boutique Hotel!
[Outsurance is currently finalising our new product development for guesthouses. This is a unique product specifically designed for guesthouses. The target date to release this to the market will be July 2011.]
Does insuring your guesthouse fall under Business Insurance or would it be similar to Household Insurance?
With OUTsurance guesthouse insurance will fall under business insurance.
How does Guesthouse insurance differ from normal household insurance
Household policies do not cater for business risks. Some of the existing products available in the market is however a combination of a personal and a business policy.
What would you advise guesthouse owner keep in mind when they are looking for insurance for their guesthouse?
The guideline below will assist the client with the possible risks that could exist and that should be considered when a decision is taken on insurance:
SASRIA
Covers politically motivated riots and damage caused by non-political riot, public disorder including labour disturbances, civil unrest, strikes and lockouts.
Vehicle
These include passenger vehicles, LDVs, commercial vehicles, motorcycles, trailers and caravans. All sound equipment and any non-standard factory accessories must be specified. Optional cover is available for car hire, business use outside SA, vehicle credit shortfall and loss of or damage to your vehicle, while it is in the possession of another party who is selling it on your behalf.
Buildings
Covers immovable structures, which you own or for which you are responsible. This includes the main building itself, the outbuildings and all other permanent fixtures, fittings and improvements. Optional cover is available for theft, accidental and malicious damage to fixed glass, machinery breakdown, subsidence, loss of rent and geyser and pipes wear and tear.
Contents
Refers to movable property and movable property designed to exist or operate outside at the premises. It does not include tenant’s fixtures and fittings, fixed glass forming part of the structure of the building, stock on your premises and stock in transit, electronic business equipment, money and items which you have specifically covered under the Out-of-Office section. Optional cover is available for damage caused accidentally, loss or damage caused by mechanical-, electrical- or electronic breakdown, theft and subsidence.
Electronic equipment
Refers to your televisions, satellite television decoders, computers, licensed software, scanners, printers, photocopiers, fax machines, projectors, audio and visual equipment and other electronic business equipment inside the building at the premises. It does not include stock items as this must be covered under the Stock section.
Stock
Refers to stock items used as part of your stated business activity inside the building at the business premises. Optional cover is available for stock designed to exist or operate outside the building, theft, damage caused accidentally, deterioration of refrigerated stock and subsidence.
Stock in transit
Refers to stock used as part of your stated business activity while being transported within SA. Optional cover is available for theft, when 3rd party carriers are used and when goods are being transported to countries outside SA.
Money
Refers to your cash, cheques, credit card vouchers, pre-paid vouchers, gift vouchers and other negotiable instruments. The money must be contained inside the building during your usual business hours at the business premises. Optional cover is available for money contained inside the building at the business premises where the incident occurred outside your usual business hours. Optional cover is also available for money while being taken to or from the business premises by a member, partner, director, employee or professional money carrier.
Out-of-Office
Refers to your possessions, which are normally taken away from the business premises. All possessions that are taken away from the premises need to be specified under OUT-of-Office. This will include items such as notebooks, GPS devices, cellular phones, cameras etc. This is also referred to as "All Risk" cover.
Watercraft
Refers to any motorboat, ski boat or wet bike which consists of the hull, motors, machinery, equipment, standard fittings and accessories that would normally be sold with it. The watercraft trailer must be covered under the vehicle section.
Business interruption
Refers to the financial loss you suffer following interruption of your business. The monthly fixed expenses and the operating profit can be covered. We define operating profit as your earnings before interest, tax and depreciation. Additional working expenses can also be covered and is the maximum amount of additional expenses necessary and reasonably incurred for the sole purpose of avoiding or diminishing the loss of profit which would otherwise have been lost as a result of the damage.
Public liability
Covers the business where it is legally liable for incidents which occur in the course of or in connection with your business. Death, illness or bodily injury caused to any person is covered. Loss of or damage to tangible property belonging to other people is also covered. Optional cover is available for:
Defective products: Covers accidental death, illness or bodily injury to other people that occurs away from your business premises and which is caused by goods or products sold or supplied in connection with your business. Veld fires: Covers damage or bodily injury caused by the spreading of a veld- or forest fire.
Employee dishonesty (Fidelity)
Refers to cover for losses following acts of fraud or theft by any employee who obtains direct financial gain by these actions.
Personal accident
Refers to cover for members, partners, directors, principals, or employees. They are covered for death or disability directly caused by an accident occurring anywhere in the world, provided that the death or disability occurs within 12 months of the injury. Cover is provided on a named person basis or a department/position basis.
Employer’s liability
Covers damages you are liable to pay arising from accidental death, injury or illness of any employee in the course of their employment with you.
How easy would it be for the Guesthouse owner to find insurance?
Obtaining insurance cover for a guesthouse with OUTsurance should be a fairly easy process for the owner due to following advantages:
- We deal direct – so there are no brokers or commission involved making the cover cheaper
- The owner will be guided through the entire process by one of our sales consultants
- The OUTbonus will reward clients that remain claim-free - guesthouses are usually small and managed by the owner who also lives on the premises so the owner can manage the risk better in terms of remaining claim-free
- We rate scientifically and good risks don’t subsidise bad risks
- The premium is fixed for 12 months and reviewed annually based on the clients profile
- We offer a monthly or an annual facility
- Client can select or “tailor” the cover to suit the specific needs of the business
- We are also prepared to cover certain risks on a stand-alone basis
- Our documentation is easy to understand
- We have a fast, service orientated and hassle-free claims process
- We will usually inspect and survey the risk based on certain underwriting rules (risk values, premium etc.) but we will also gladly do this on request and assist and explain all the relevant covers, special conditions, underwriting requirements and answer any questions the owner may have
Does guesthouse insurance cover the belongings of guests staying over as well?
As mentioned before we have designed a specific product for guesthouses that will be launched in July 2011. The product is designed to offer certain benefits at no additional cost when cover on specific risks is selected. For example Contents cover must be selected to qualify for some of the benefits.
What would be the benefits included in such a Guesthouse Insurance Policy?
The benefits include the following:
(A limit on the number of claims or an excess may apply on some of these benefits)
Benefits available under Vehicle cover:
Help@OUT roadside assistance
Applies to vehicles with a mass of less than 3500kgs. A R 5,000 annual limit and a maximum of 2 incidents apply. The following will be covered:
- Breakdown (excluding accidents) covers the tow to the nearest service provider or place of safe keeping. The tow–in cost is covered. The costs of additional tows are not covered
- Safe storage of your vehicle – R400
- Flat tyre – Call out + 1 hour labour
- Flat battery – Call out + 1 hour labour
- Keys locked in vehicle – Call out + 1 hour labour
- Run out of fuel – Call out + 10 litres of fuel
When you are stranded more than 50 kms from home:
- Hotel accommodation or alternative transport – R 400
- Repatriation of your vehicle – R 400
The costs for materials, parts and additional labour are not included.
Benefits available under Contents cover:
Locks and keys
Covers the cost of replacing locks, keys and access control devices for the insured premises following a burglary or attempted burglary up to R 2,500.
Property belonging to employees
Covers theft of the personal contents of any watchman, caretaker, domestic employee or gardener in the permanent employment of the guesthouse up to R 5,000.
Stock, stock in transit and deterioration of stock
Covers the stock for the cost price for loss or damage caused by the insured perils covered under the Contents section. It also covers the deterioration of stock in a fridge or freezer where damage is caused by a power failure, mechanical or electrical breakdown where the cooling unit was out of order for more than 24 hours. When the guesthouse transports groceries this will also be covered for theft and accidental damage. This benefit offers R 5,000 cover. Cover for higher amounts are available under our Stock and Stock-in-Transit section.
Medical and funeral cost
Covers the medical and/or funeral cost due to a fatal injury caused directly by a fire or crime at the premises up to R 10,000.
Injury to your pet
Covers veterinary costs resulting from a motor accident in which your household pet is injured up to R 2,000.
Help@OUT home and office assistance
Home assistance applies if you have selected Contents or Buildings cover. An annual limit of R 5,000 and a maximum of 2 incidents apply. The following will be covered:
- Locksmiths – Call out + 1 hour labour
- Electricians – Call out + 1 hour labour
- Plumbers – Call out + 1 hour labour
- Tree fellers – Call out + 1 hour labour
- Bee keepers – Call out + 1 hour labour
- Builders – Call out + 1 hour labour
- Glaziers – Call out + 1 hour labour
- Security – Call out + 12 hour shift
We also offer a referral service for the following:
- Public emergency services
- Notification to the SAPS, Traffic, Ambulance and Fire Brigade Services
- Home gadgets – referral to service providers for home appliance repairs and services
The costs for materials, parts and additional labour are not included.
Benefits available under Buildings cover:
Tree removal
Covers the cost of removing fallen trees up to R 5,000.
Garden damage
Covers the cost to replace grass, trees, plants, shrubs, water features and statues on the premises following damage by fire, fire fighting operations, explosion, damage caused maliciously, impact by vehicles, aircraft or articles dropped from them up to R 5,000.
Escape of beverages
Covers the damage caused by the escape of liquor and other beverages from fixed installations including the actual loss of the liquor and beverages during this incident up to R 10,000.
Help@OUT home and office assistance
Home assistance applies if you have selected Contents or Buildings cover. An annual limit of R 5,000 and a maximum of 2 incidents apply. The following will be covered:
- Locksmiths – Call out + 1 hour labour
- Electricians – Call out + 1 hour labour
- Plumbers – Call out + 1 hour labour
- Tree fellers – Call out + 1 hour labour
- Bee keepers – Call out + 1 hour labour
- Builders – Call out + 1 hour labour
- Glaziers – Call out + 1 hour labour
- Security – Call out + 12 hour shift
We also offer a referral service for the following:
- Public emergency services
- Notification to the SAPS, Traffic, Ambulance and Fire Brigade Services
- Home gadgets – referral to service providers for home appliance repairs and services
The costs for materials, parts and additional labour are not included.
Benefits available under Public Liability cover:
First aid treatment
Covers the liability associated with injuries caused when first-aid treatment was administered by the insured. The Public Liability insured value will apply.
We have also added specific optional cover under some of the sections of the cover. For example Business Interruption cover must be selected and the Tourist attraction loss optional cover must be selected to qualify for the cover provided by this option.
What are the optional cover options that a guesthouse owner might consider?
The optional cover options include the following:
(A limit on the number of claims or an excess may apply on some of these optional covers)
Optional cover under Money:
Bilking
Bilking covers the cost where booked-in guests leave without paying the bill for their accommodation. The amount of cover required can be selected. The cover is limited to 2 x the insured value.
Optional cover under Contents:
Property of guests
Covers the uninsured property of guests and visitors at the premises. The amount of cover required can be selected.
Optional cover under Business Interruption:
Tourist attraction loss
Covers a financial loss the business suffers when an interruption of the business is caused by:
- Murder, rape or suicide occurring at the premises
- Food poisoning caused by food and drinks sold or supplied at the premises
- Closure of the premises on instruction of the local authorities due to defective sanitation, vermin or pests
- A shark attack or attack by wild game occurs
- Pollution, contamination or seepage that occurs
- Abnormal noise caused by construction activities occurring within 500 meters of the insured premises
- A bomb scare where the access and use of the premises were prevented on instruction of the police service
- A loss of visual appeal in consequence of damage to property forming part of or contained in the complex of which the premises form part of
- The prevention of access as a result of a veld fire
- The death of animals due to a veld fire (the animals itself is not covered only the financial loss incurred because the attraction these animals offered no longer exists)
The Business Interruption insured values will apply.
Optional cover under Public Liability:
Break out of wild animals
Covers the liability arising from wild animals breaking out of the perimeter fencing on the premises and the recovery and relocation of these animals. The amount of cover required can be selected.
Would the premium purely be based on the value of the Guesthouse – or would the fact that several people stay in different rooms also increase the premium?
A guesthouse is considered to be a fairly low risk. The premium will be calculated scientifically based on the information the guesthouse owner provided. The type of items covered and the insured values selected will also be used to calculate the premium
What are the most often encountered claims you receive from damage to Guesthouses?
Most guesthouse businesses are fairly small and the owner may not always recover from a loss if the guesthouse did not have proper insurance cover in place. Typical losses that such a business may encounter can include the following:
Vehicle accidents, thefts and the associated liability claims resulting from vehicle accidents.
Thefts and robberies that occur. The most attractive items will include property belonging to guests and employees, stock, money and electronic equipment. We also know that guests are sometimes careless or they are so relaxed that they forget to look after their belongings and they then blame the guesthouse owner if something goes wrong.
Water damage – This is also one of the main culprits for losses. Accidental flooding, burst pipes and geysers can also add to large losses in terms of the fixtures and fittings, contents and electronic equipment inside the premises. To reduce the exposure and to obtain a discounted premium the sensitive items should be lifted from the floor where possible.
Electronic equipment is very vulnerable in terms of lightning and power surges. To reduce the exposure and to obtain a discounted premium these items should be properly protected with lightning and surge protection devices to reduce the lightning and surge damage exposure.
Guests leaving without paying their bill often occur and it can leave the owner with quite a big loss especially when it is a fairly small guesthouse.
Floods - Some guesthouses could be located close to flood risks like rivers, the ocean etc. because of the tourist attraction it offers. Flood damage will be very expensive and can lead to major losses. The main problem with flooding is the fact that it will re-occur again. It is sometimes not possible to remove the flood hazard and this could lead to cover exclusions or restrictions being placed on the cover.
Fire – Fires can result in total losses. Almost 60% of fires occur due to cooking taking place at these risks. Dirty equipment, defective appliances, unattended cooking and staff negligence all contribute to these losses from occurring. Flammable gas is also often used for cooking and leaks, faulty appliances and defective installations can increase losses. Always make sure reputable appliances, equipment and suppliers are used where possible.
Are there any other claims that the owner of a guesthouse should be aware of?
The following losses may not be encountered that often, but it should still be considered as it can lead to expensive losses:
When a valid claim occurs and extensive damage was caused the business will be interrupted and without Business Interruption cover this can result in expensive financial losses.
Employees can be tempted at times and they may commit theft and fraud while they are employed by the guesthouse. Guesthouse owners should consider Employee dishonesty (Fidelity) cover as most insurance policies exclude theft and fraud committed by employees unless the optional cover was selected.
Employers can be liable to employees where the incident occurred in the course of the employee’s employment with the business. An employee can get injured at the guesthouse and this may result in legal action against the guesthouse owner. Guesthouse owners should consider taking Employer’s liability cover when their employees are not registered for workmen’s compensation.
The guesthouse can be liable for incidents which occur in the course of or in connection with the business. This can include death, illness or bodily injury, loss of or damage to tangible property belonging to other people. Typical incidents could include “slip and fall” incidents and food and drink poisoning. Guesthouse owners should consider taking Public liability cover.
Personal accident – Should a member, partner, director, principal or employee die or be disabled directly by an accident it could also lead to a loss. The guesthouse can select to cover “key” individuals on a named basis or on a department/position basis. It may also be costly to replace someone like a manager or a chef because a new employee must be sourced and then trained.
Tourism experts believe that the benefits of major events often become visible in increased tourism only in the years after the event. The Football World Cup 2010 has placed South Africa on a solid foundation for increased growth, and tourism officials are expecting to experience the benefits in increased travel to South Africa.
It appears that Government leaders are ready to assist in marketing South Africa as a top tourist destination. President Jacob Zuma on Wednesday became the first African head of state to sign the Global Leaders for Tourism campaign - a joint UN World Tourism Organisation and World Travel and Tourism Council initiative to boost international travel and tourism.
Speaking at the signing ceremony President Zuma said South Africa had identified tourism as one of the six "job drivers" in his government's New Growth Path framework.
How much growth is expected?
President Zuma announced that the following expectations:
To increase the number of foreign tourist arrivals to South Africa from seven million in 2009, to 15 million by 2020.
To increase tourism's total contribution to the economy from R189 billion in 2009, to R499 billion by 2020," he said.
Government wants to increase the number of domestic tourists in South Africa from 14.6 million in 2009, to 18 million by 2020.
It is the vision of government to create 235,000 new tourism jobs by 2020.
Tourism's contribution to the country's GDP had increased from just less than five percent in 1994, to an estimated 7.7 percent in 2010, and the sector was well positioned to be a leading avenue to address unemployment.
Tourism Minister Marthinus van Schalkwyk said international tourism forecasts showed the sector was set to soar:
"Two years ago, there were 935 million tourists [internationally], and in just 11 years, this figure will double to 1.6 billion international arrivals," he said.
Hotels, Guesthouses and those who provide Bed and Breakfast will all benefit from increased tourism. It is however not only these businesses who will benefit, but also small entrepreneurs such as taxi drivers, vendors etc.
South African cities are ready to shine as well! It has been revealed that Cape Town has come out tops against cities like London, Sydney and New York in this year’s TripAdvisor Traveller’s Choice Destination Awards.
TripAdvisor is the world’s largest travel site, and the awards are based on millions of opinions posted by TripAdvisor travellers. Leading the pack of top 10 cities, Cape Town also beat Paris, Barcelona, Rio de Janeiro and Rome.
Guesthouse insurance is a unique type of insurance, falling in a category between personal and business insurance. The owners of guesthouses, Bed And Breakfast and even Boutique Hotels are faced with some rather unique perils - and they need to find the correct insurance to cover them against these perils!
The correct guesthouse insurance should be tailored to each individual guesthouse, meeting both the needs and the budgets of the owners. Not only will this protect the owners from forces of nature, accidents, visitors or crime but it could also have an impact on aspects such as marketing and grading of the guesthouse.
I have taken the time to analyse a number of guesthouse insurance policies and decided it might be appropriate to share the wide range of perils that threaten the guesthouse business. It might well be that you do not need to be insured against all these risks. – but it remains prudent to be aware of the full spectrum of potential hazards!
Insurance to cover damage to buildings / structures
The first and obvious risk is the risk to the guesthouse building, structures and even garden on the premises. The guest house insurance policy will normally cover the main property, small outside buildings, walls, gates and fences against these perils:
Fire, lightning, explosion, aircraft, storm, flood, escape of water, theft, impact by vehicles or animals, riot, civil commotion, malicious damage and accidental damage.
Subsidence, ground heave and landslip cover.
Signs and signposts.
Garden plants damaged or destroyed during fire fighting operations or by a motor vehicle.
Insurance to cover appliance maintenance and household maintenance services
Guesthouses have to deal continuously with important services such as Maintenance and Repair. This is also sometimes described as the Household Services section of the policy. The guesthouse insurance policy could provide cover for the expenses incurred for labour and parts costs of electrical and plumbing services to repair and attend to the following:
Faulty lights
Blocked drains
Plugs Leaks (toilets, etc.)
Geyser thermostats
Tap washers
Geyser elements
Toilet rubbers
Power failures
Geyser valves
Distribution boards
Burst pipes
Earth leakage
Blocked baths, sinks and traps
Relays
Shower outlets
Light switches
Water connections
Burnt plug points
General house wiring
Electric gates, electric garage doors, jacuzzi pumps, swimming pool pumps etc
Appliance repair of Television sets, Fridges, Hi-Fi sets, Freezers, Video cassette recorders, Washing machines, Microwave ovens, Tumble driers, Stoves, Dishwashers etc
Insuring Contents
Important contents within the guesthouse is usually included in the guesthouse insurance policy. These contents include:
Business Contents: The contents which guests will have access to or which will be used in conjunction with your business, i.e furniture, carpets, cooking equipment etc.
Stock (In Trade): The stock in trade for standard perils like food, or any other items that you may sell.
Stock (Refrigerated): Damage to frozen or chilled stock in any freezer, in the event of breakdown of refrigeration units, usually less than 10 years old or accidental failure of public electricity supply.
Cigarettes, Cigars & Tobacco: As it says, this covers the stock of cigarettes, cigars and tobacco. This is often added to a policy if you have a public bar.
Wines & Spirits: If your guest house is licensed and you sell alcohol you may require cover for wines and spirits. Again this can be a popular feature if you have a public bar.
Goods In Transit: Covers stock whilst in transit for damage caused, say if the vehicle has an accident and it ruins your stock.
Fixed Glass: The buildings section will normally cover glass in windows or internal doors, and contents cover will cover the glass in fixed items like a display cabinet etc. If you don't own the property then you may be responsible for damage caused to window panes.
Fixed External Signs, and Canopies: Covers any external signs and canopies outside your guest houses which normally advertise your guesthouse on it.[If not already covered under the Building and structures]
Loss Of Licence: If you have a licensed guest house, i.e. you sell alcohol, then you may require loss of licence cover. It covers the reduction in value of your business as a result of non-renewal or withdrawal of your licence from causes beyond your control.
Money: This can cover money, crossed cheques, postal orders kept at the premises during and outside of business hours which may be stolen or damaged by one of the standard perils.
Personal Effects of Customers, Guests and Employees: It covers customers, guests or employees personal effects, like baggage etc for the standard perils. Optional but again can be a useful addition to the policy.
Legal Expenses: Cover is provided for costs incurred in pursuing or defending the legal rights of the business in relation to statutory employment and taxation legislation, contract disputes and in pursuit of common law actions against third parties for nuisance and property damage. You will normally be charged extra for this cover.
Outside Catering: If you provide catering outside the guest house then you may require extra liability cover. Most insurers will charge extra for this and is not normally automatically covered under policies.
Own Personal Contents: If you have your own private quarters within the guest house it's advisable to include cover for your own contents and valuables, like furniture, clothing etc, against the standard perils.
Unspecified Personal Possessions: If you take any of your contents AWAY from the property, then you may want to insure them whilst outside the guest house, like jewellery, cameras, video cameras etc. This section includes this cover, usually for an additional fee.
Insurance to cover threats presented by guests
Unfortunately not all guest are hassle free guests. You may need to consider cover to protect from:
Bilking: Provides cover in case your guest disappears without paying.
Accidental damage: Where guests damage contents in some way.
Insurance to cover against claims from visitors
The most important aspect a guesthouse owner has to consider is insurance to protect from Public Liability. This provides the owners with peace of mind in the event of a claim (or law suit) being laid against them should something happen to a guest while staying at the guest house. The Public Liability cover will insure the client against claims that they are legally liable to pay for in the event of bodily injury to third parties or employees and damage to their property etc.
It is often mandatory for establishments hosting international guests to have a specific amount of public liability cover (such as the recent football world cup).
Perils covered under public liability would generally include:
Food poisoning - Should your guests suffer from an ailment that could have been caused by a meal that they had at your establishment, you will be covered for this liability.
Damage to personal effects of guests.
Cover for activities, wildlife, spa’s etc that you possibly host.
Trauma counseling costs following a violent event for guests.
Damage to laundry of guests
Insurance to cover threats to business / operational wellness
How would you best protect your guesthouse from sudden loss of revenue/ business income? What would happen if a violent crime is committed at your guesthouse, a major event is cancelled or your business partner passes away? If your property is damaged by one of the insured perils, for example has a fire and you are unable to let any rooms out for 12 months whilst the property is being repaired, you may lose out on your income due to the rooms not being let out. Will you be covered and will you be reimbursed for your financial losses?
These are all questions the owners of a guesthouse have to consider. Guesthouse insurance could be tailored to cover the following:
Cancellation of event or cancellation beyond the control of the guest
Loss of data in computers up to a specified amount
Telecommunications breakdown
Suicide, murder or rape or any attempt thereat
Staff stayaways – legal or otherwise
Failure of essential equipment eg. air conditioners
Death or hospitalisation of a “key member” being a spouse, partner or manager
Noise pollution from premises within 500 meters of the establishment
Legal service and medical services
Insurance to cover transportation perils
A very important aspect often neglected is the insurance required for vehicles used by the guesthouse. The insurance policy for the business should take into consideration whether visitors are transported with the vehicle to the guesthouse from the airport etc.
No guesthouse owners would like to hear that neither the car nor the passengers are covered, as the vehicle was being used for business and not for personal use. It is best to enquire from the insurer whether the vehicle is insured for business purposes and whether a PrDP license is required by the driver where passengers are transported at a fee.
This insurance could also include the following:
Assistance with mechanical and Electrical Breakdown
Emergency assistance such as a towing service to the nearest place of repair or safe keeping
Jump Start Service, Tyre change Service, Assistance when keys are locked in the vehicle etc
Insurance to cover damage caused by employees
This is also known as Fidelity insurance. Even if you have done all the due diligence and appointed the best employees, they might still cause some damage. This section of the policy covers money or goods of the insured stolen by an employee who causes a financial loss to the insured. Common Fidelity claims include employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.
Conclusion
We have named a rather comprehensive list of perils and challenges facing owners of guesthouses. It might well be that you need less insurance cover and that your insurance policy, without you knowing this, might cover most of these perils.
We would like to advise that you discuss this in detail with your insurer to confirm that your policy meets your specific needs!
