LOUISVILLE, CO—What type of insurance is best when it comes to missing or damaged FF&E? That’s a question Audit Logistics LLC, based here, aimed to answer with a recent insurance study.
Darlene Henke, president of Audit Logistics, a global freight, warehouse and recycling management company, noted that her company works on roughly 1,000 hotel projects a year, the majority of which are renovations. “[For] a lot of the projects we work on, freight claims are kind of bad words—always associated with negativity—because people aren’t that educated on how they work,” she said.
However, she noted, freight claims do affect most hoteliers. “On all of our projects, we run, as a company, less than half a percent on claims, but I would say probably 75-80% of all the projects you do have a claim on it at one point or another,” Henke said, noting that it can sometimes be caused by the trucking company’s handling of the merchandise or when goods are stored locally in warehouses before installation. “The owners suffer because they get to the end of a project, have done all this planning for all these years and are ready to open, but they’re missing furniture or some sort of FF&E; they’re not able to turn those rooms, which equates back to displacement of guests and lost revenue,” she said.
Henke noted that there are primarily two ways for an owner to recoup losses when a freight claim occurs: In the more traditional model, the third-party logistics company files a claim with the carrier’s insurance company for resolution; in the second model, used more historically with international shipping, the third-party logistics company provides its own insurance policy to file claims against, and that typically has a deductible associated with each claim (usually $1,000).
“There are different companies that sell different types of insurance to hotel owners through the purchasing companies or through the project management groups,” said Henke. “People believe that they’re getting a good deal but, when you actually look at the numbers, which is what we tried to do in the study, what they think is a good deal isn’t actually that great because claims are not usually for huge amounts of money.”
Over the past two-and-a-half years, Audit Logistics has had a lot of people asking if the company offered insurance. “Our company had the ability to get it, but we would go back to them and say, ‘We can offer that insurance, but it doesn’t make sense.’ But, they had this belief that if they had this insurance it would be the coverall for everything,” she said. “After a year-and-a-half of that coming up, we said, ‘Let’s go back and look at the statistics we have over a time frame.’”
Audit Logistics conducted its study of some $400 million of FF&E shipped over a 16-month time period. The study looked at several factors: the dollar value of each claim filed under and over $1,000; amounts of claims honored through carrier insurance; and the total net payout owners received.
The result? Of all claims filed, 73% were under $1,000 in value—making the deductible offered in some models irrelevant, said Henke. In addition, claims paid through the carrier insurance were typically for 33% more than models requiring the $1,000 deductible. “The key takeaway is, if someone is offering an ownership group an insurance policy that says it’ll pay all the claims, pay attention to what the deductible is,” said Henke. “That deductible is often more than the cost of a piece of furniture.”
Henke noted that even she was surprised by how many claims didn’t reach the $1,000 deductible. “At the end of the project, we look at how many claims we have and what they total together—a project might have 500 inbound shipments from all the different manufacturing companies that make the FF&E—but the fact is every claim is its unique claim,” she said. “In our study, there were approximately 597 claims represented in that group, and 476 of them were under $1,000. It makes sense because, in a hotel, there are not that many pieces of furniture that are over $1,000. The only times you’re really going to see pieces that expensive is when you go into the lobbies. Maybe you have the expensive piece of furniture or the chandeliers, but the majority of everything is not that expensive piece by piece.”
There are several questions owners should ask when it comes to FF&E insurance. “What’s the average cost of my piece of furniture? If they’re looking at insurance for shipping purchases, and they’re worried about their FF&E being damaged during the shipping or warehousing, find out from the provider how many projects it has done and, of those, how many claims has it had,” said Henke. “The real professional companies out there have full-time claims departments as part of their organization, and they keep those statistics. They review the claims ratio they’re running with each of the trucking companies or warehouses they use. If an owner asks those questions and the companies can’t answer, that should raise a flag right there. At the end of the day, it doesn’t matter how great your insurance is if the product shows up damaged or broken, especially now when the industry is busier than it ever has been, and the owner could wait 16 weeks to get the replacement. If you’re sitting for that long without the merchandise, that’s where you end up really paying.”
Owners can also be proactive about streamlining the claims process. “Make sure the companies they’re using have good practices in place,” said Henke, noting that Audit Logistics confers with the general contractors, installers and hotel staff to educate them about the proper way to sign for merchandise and what to look for. Then, they sign an acknowledgment form. Henke noted this kind of practice can cut down on a common problem for owners. “A lot of times, the general contractor is putting product in rooms and the team may come across something that’s damaged and stick it in a room to the side,” she explained. “Then, at the end of the project, when they’re ready to turn the last floor, they’ve got all this damaged merchandise; it creates problems where you have claims and you can’t get them paid because merchandise sat for three months. It’s harder to go back and prove where and when it was damaged.
“We do a lot of preventative maintenance on our side to make sure everybody is educated so, in the event of a claim, we can handle it right away,” she continued. “When you follow the proper procedures, it’s easy to get paid. It’s when you don’t that you have challenges.”
According to Henke, Audit Logistics has gotten great feedback from owners about the study. “What’s great is, whenever it comes up now, what we generally do is send them a copy of the study and show them the facts. Nine times out of 10, they say, ‘Thanks for explaining. We weren’t aware,’” she said. HB