Cover your assets. Part two: Insurance pitfalls, they’re easier to avoid than escape

February 2nd, 2018 | | Accommodation

Everybody makes mistakes. No one is perfect. However, today we’re covering a few common insurance pitfalls and mistakes that can be fatal to a backpacker or youth tourism business. We all know every business needs insurance to protect itself. In the first part of this series, we explored the basic types of insurance that every company should have. Building upon that knowledge, this part will explore the insurance pitfalls that every backpacker industry business should be careful to avoid. These mistakes can inadvertently leave your assets uncovered. Is your company susceptible to any of these pitfalls?

Incorrect categorization

The easiest insurance pitfall that many backpacker hostels still fall for is not correctly categorizing your business with the insurance company. Although backpacker hostels are lumped in with other types of accommodation on booking websites, it’s essential that an insurance policy distinctly identifies the business. Backpackers playing goon pong by the hostel swimming pool is more risky than pensioners enjoying a champagne brunch at a bed and breakfast. Insurance premiums and cover naturally matches this risk accordingly. Although categorizing your hostel as a motel could save you money on your insurance premiums, it would cost you dearly if you made a claim. Best case scenario, the insurance company might require you to pay the extra difference for hostel insurance premiums. Worst case scenario, the insurance claim might be completely denied. Ensure that your insurance policy accurately describes your business, or it may not protect your company if making a claim becomes necessary.


Like miscategorization, underinsurance is easy to understand, however, it’s much harder to detect. Underinsurance is when your company doesn’t have enough coverage to protect all its assets. Imagine a travel agency suffers $25,000 worth of damage in a fire. At first, the owners think, “Not to worry. Our agency is insured for $200,000.” However, it turns out that the agency and its contents are worth $400,000. The insurance company is likely to only pay $12,500 or 50% of the agency’s loss. At first it might seem counterintuitive that they paid a premium on $200 thousand in coverage and the policy won’t pay a $25 thousand claim, but it’s called co-insurance. Because the agency declared 50% of the true replacement value, the insurer considers that the owners are therefore bearing 50% of the risk, and will share in the actual cost of replacement to the same percentage. To avoid this pitfall, ensure that your business’s insurance policies cover the full value of your assets.

Bad risk management

The third insurance mistake that businesses make is poorly managing their business’s risk exposure. Even though having insurance means a business is covered in the event of an incident, insurance should be the last line of defence. Every business, especially in the risk-heavy backpacker industry, should actively manage the amount of risk present in their operations. Risk management determines the likelihood of an insurance claim, which in turn can affect the cost of your coverage. Insurance companies send inspectors to evaluate a company’s risk management practices on a number of factors. The most important factor is fire safety. Every business has different fire safety needs (e.g. what type of fire safety equipment is necessary, how your business would evacuate in the case of a fire), but fire is one of the greatest concerns for insurance companies, and therefore being prepared is one of their highest concerns. Another risk management factor is whether your company has maintenance programs in place. If your tour bus is overdue for a service, or your hostel’s roof is barely holding up, insurance inspectors will take notice. Lastly, inspectors want to see that a company’s risk management practices are documented. Proper operating procedures for minimizing risk show the insurance company that it’s not all talk. Ensure you consider these factors and whether your business could be doing more to actively manage its exposure to risk.

Pitfalls are easier to avoid than escape

Insurance is not fun and most managers and business owners would probably prefer to “set it and forget it.” However, to properly protect a business, management should remain proactive. Good risk management is a daily practice that helps companies avoid insurance claims and keep their premiums from rising. Periodically reviewing your insurance policy ‘at least once a year’ ensures your policies still fit your business needs. As with most risks in life, preventing insurance problems is cheaper than fixing them after the fact.


For immediate piece of mind and a lookover your insurance needs, have a chat with Fred or Andrew at AllsoppBunting Insurance – your insurance broking specialists. – 0419 296 031 or – 0411 611 988. Or check out their new website for more details –