Liability Insurance for Your Micro-Resort
By Isaac French
A lot of folks are just plain suspicious about direct bookings.
They have all kinds of reasons to feel that way. I think those reasons are all poorly reasoned.
You know already just how much I praise them. It’s a serious advantage to have. I mean, who wouldn’t want way more bottom line profit as well as juicy enterprise value if you want to exit, like I did?
One of the key objections I’ve heard concerns liability. Airbnb, Vrbo, Booking.com — all the major OTAs have their own host insurance coverages. The “peace of mind” that you can sleep easy knowing any damage or liability incidents will be easily covered…
Not so fast.
I’ve been through the process trying to use these, such as Aircover. It’s tedious and frustrating to navigate at best. Simply AWFUL at worst. Many of you guys can attest to this, I know.
With 80%+ direct bookings rates at Live Oak Lake, I wanted that peace of mind. So I got a general liability policy to cover us if any big incident ever were to happen, God forbid. It can be a bit tricky explaining the micro-resort concept to a liability insurance underwriter, just like it is with conventional construction or development lenders as I covered a few weeks ago.
It’s a new concept to most of them. We ended up being classified as a campground. Several of the companies my agent shopped turned us down because of this.
They were just not familiar with a multi-unit direct-booking STR, and the pond in the middle of the property didn’t help. We also had the hot tubs and container pool. They’ll require certain signage (no lifeguard on duty, warnings, etc) for this, but otherwise these water features are generally straightforward.
I ended up getting a $2M general liability policy, with a $5,000 deductible if my memory serves me. Whole thing cost $5,000/year for our 7-unit property.
The same company also provided the best property insurance, as well as revenue insurance of $90k/unit in the event of damage occurring that necessitated closing a unit down for repairs.
All in, we spent $12,000/year on these 3 types of insurance for the whole property / business.
In addition to this, the direct bookings actually give you a unique advantage when it comes to small damage incidents. I have the guest’s authorized credit card on file. I played around with a refundable damage deposit, but ended up taking it away.
At least half the guests would message me asking about it, even though it was thoroughly communicated through our automated messaging. Just got tired of dealing with everyone, so we took it away, though we left it in the welcome message and in the listing text, which preemptively served to caution the guests to be careful.
These damage incidents are quite rare, especially when you’re dealing with the higher paying clientele that unique and experiential accommodations attract. But whenever they did happen, we’d simply message the guest directly and then process a charge for the amount.
1,000% easier to deal with than going through Airbnb or the other OTAs and their laborious, obnoxious, unhelpful, designed-to-make-you-worn-out-and-just-say-forget-about-it host coverage programs like AirCover.
So, that’s the lowdown on liability coverage for micro resorts. I would argue that you actually have a huge advantage with direct bookings. And you should have no problem shopping around a simple general liability policy to cover you from anything big.
I sleep a lot better than I ever did with Airbnb. And you can, too.
If you want recommendations for an agency to help you source a policy specifically designed for these types of accommodation businesses, let me know.
And tell me what questions you have. As always, thanks for reading!! Don’t forget to share the newsletter with anyone who might be interested. Use the link in the footer below to earn rewards as you do. Means the world.
Have a great Monday!
—Isaac