This Specialty Niche Is Attractive
The upscale hotel market is one of the fastest growing parts of this industry segment. These hotels offer many services and provide accommodations that set them apart from the crowded marketplace. Insuring these unique properties requires personal visits and working with the insured and the brokers to properly assess the coverages needed and develop the correct pricing.
This specialty niche is attractive because the premiums are significant and brokers and Managing General Agents (MGAs) are extremely interested in providing coverage. The hotel operators are eager to work with an agent who knows about their needs and is interested in the particular hotel's unique features.
Opportunities Exist in Evolving Upscale Hotel Market
Innovative technology and eco-friendly options contribute to market growth
By Dave Willis
Like other businesses, the hotel industry has enjoyed growth over the past few years. Experts expect the trend to continue. "We're seeing low-single-digit annual growth in room count and expect that to be the case over the next year or two," explains Tom McDonough, underwriter for Suitelife by Venture Programs. "The higher growth is in the three-star and four-star full-service hotels, both independents and national chains."
He says occupancy rates are at all-time highs, matching where they were in the mid-1990s. "The winter months see a low of around 52% occupancy, while summer expectations top 73%," he adds. In his firm's space-the upscale luxury hotel and resort arena-occupancy rates are significantly higher.
"Resorts make up a big part of our business, and they tend to fill up during the vacation months," explains Joe Dolce, CPCU, Suitelife executive vice president. "Typically, we see this with family resorts, beach resorts and mountain resorts."
McDonough says, more and more, hotel guests are seeking unique experiences and attention to detail. "This could be anything from staying in historic buildings, with distinctive design and atmosphere, to hotels with experiential, recreational and other activities," he notes.
Dusty Rowland, president and CEO of Fulcrum Insurance Programs, concurs. "The upper upscale and luxury segments continue to move toward 'lifestyle' and 'experiential' models," he says, "aiming to attract Millennials and Gen-Xers as they approach the prime of their careers." He cites unveiling of new brands, like Moxy and OE Collection, as a way that large hotel companies are trying to differentiate themselves from their more traditional luxury brands.
"Recent studies reveal that rising affluence, globalization and technology have led to modern hotel guests valuing experiences and the feeling of 'being connected' over traditional hotel luxuries," he adds. Key trends for lifestyle and experiential models include wellness, eco-friendliness, accommodating design and innovative use of technology.
"Hotels are going beyond 'gesture' and fostering wellness hubs with in-room workout equipment, on-loan exercise clothes and equipment, running maps, classes and beyond-the-gym experiences," Rowland explains. "They're creating meaningful social activities and lasting memories. Spa treatments incorporate high-tech healing and anti-aging experiences via a hybrid of technology and classic treatments, and menus offer globally inspired cuisine with locally sourced ingredients."
Eco-friendly hotels are on the rise, too. "Hotels are demonstrating greater commitment to social responsibility and reducing their carbon footprints in a number of ways," he notes. "They're using more building materials from sustainable resources, sourcing heat from biofuel and solar energy, using low-energy lighting and innovative designs to improve airflow and temperature, and sourcing food for their menus from local vendors." Some properties are incentivizing green transportation by providing charging stations for electric cars and bicycles for guest use.
"We've also seen guest rooms being transformed to more open living spaces," Rowland explains. "As work becomes more mobile and room service less important, traditional desks or tables and chairs are being eliminated. Showers are the new bathtub, and hard surfaces are replacing carpets, because they are cleaner."
He says more properties are using modern decorating materials, such as salvaged wood, stone and metal, vertical living gardens, and versatile furnishings in natural themes and organic designs that connect people with nature. "In addition, natural light is a priority," Rowland adds. "Not only does it reduce the amount of energy needed, but it also boosts health and reduces anxiety."
Finally, he notes, technology is being used to innovate and to personalize guest experiences. "More and more upscale properties are acting on the belief that technology should be everywhere and nowhere at the same time, perfectly integrated into the guest experience, without intruding," Rowland explains.
He says hotels will continue to learn more about their guests through the booking experience. "They'll also offer guests more control of their environment, allowing them to control room temperature and lighting from their tablets, stream their own content, book travel on a smartphone and use mobile check-in," Rowland adds. "Hotels also will benefit from energy conservation breakthroughs like automatic shut-off lights."
Technology plays another role as upscale hotels engage with connected consumers. "Online presence and use of social media have become increasingly important," explains McDonough. "Reviews on TripAdvisor and Yelp are significant differentiators for leisure travelers. Individual hotels need to satisfy guest expectations and recognize that their performance will be placed online for everyone to see."
Dolce says independent, boutique and high-end, full-service hotels are leading the way in the online presence and the use of social media. "Their websites are state-of-the-art and really provide potential guests a flavor of what the experience will be like," he explains.
"Reviews they get generate interaction with guests," Dolce adds. "Upscale and resort properties tend to reply more to comments made on TripAdvisor and other sites. Often, it's the general manager who responds."
Rowland points out that operators in the space continue to be challenged with the pace of change, as the Baby Boomers slow down and younger generations increase travel and leisure. "In addition to finding the right balance of technology and local authenticity, luxury hotel owners and operators are now feeling the pressure from the new renter economy, led by sites like Airbnb, VRBO and HomeAway," he adds.
Insuring luxury properties
According to Rowland, "The overall P&C industry remains well capitalized, which in turn has played a part in providing a stable insurance marketplace for the higher-end segments of the hotel and resort segments." He's not seen new program players, and the number of direct providers is unchanged.
Dolce concurs. "Competition in the full-service, boutique, 'clubs with lodging' and condo hotel segments has been very stable," he notes. "We haven't seen many new entrants, because it's a difficult product to build." He did say the limited-service hotel business has constricted somewhat. "We are getting more calls on that business than we used to," he explains. "It's not our space. I used to know where to point them, but now I don't."
Pricing for GL, auto and umbrella has been mostly flat for good accounts in the upscale market. "Property has been a bit softer, overall," Rowland says. "As you see in many industry segments, inexperienced underwriters looking for market share continue to cause market disruption for long-term program providers and can result in market volatility in the long run."
McDonough says cyber liability is gaining some steam in the market. "We're seeing increased attention and traction as data security breaches become more common," he explains. "A data breach can damage the reputation of the hotel owner and can affect the entire brand for franchised hotels."
He says hotels and resorts with spas or day camps are more aware of exposures for abuse and molestation. "Another item we're seeing is a trend toward higher umbrella limits," McDonough notes. "Frequently we see hotels purchasing twenty-five million dollars or more to protect themselves against larger losses."
Loss trends continue to see slip/trip and fall as the leading cause of loss. "More than 50% of all claims are attributed to this," Rowland explains. "These types of claims drive both frequency and, at times, severity, with the occasional major injury from a fall." He says luxury hotels continue to see larger losses from various exposures like liquor, auto, assault and battery and severity-type amenities. "This claims trend has the potential to increase as the lifestyle and experiential models continue to diversify," he adds.
McDonough points out that parking areas and valet services tend to have a lot of third-party property damage frequency. "Those are the two biggest drivers as far as frequency," he notes. On the property side, burst water pipes, particularly in cold areas of the country, sprinkler leaks and roof leaks also are common loss drivers, he adds.
He encourages retail agents and brokers to make sure formal, written safety programs are in place to help clients satisfy risk control techniques recommended by the MGA or carrier. "We want our brokers to participate in the loss control visits we perform on every account," McDonough adds. "They can help gather information and then encourage clients to utilize carrier or program administrator resources, such as white papers, safety manuals and effective employee background checks."
Contract management is becoming more critical as hotels and resorts offer more amenities. "Risk transfer becomes relevant with third-party spa exposures, day camps and skiing exposures," McDonough notes. "Guest waivers also should be required for bikes or snow tubing-any kind of rentals a hotel or resort may do."
Third-party action-over exposure in New York is another concern. "The New York labor law has been around for a long time, but we've seen some larger claims coming from that more recently," McDonough notes. "Hotels need to ensure they have proper contract wording in place whenever a third-party contractor enters their premises." Dolce adds, "This is an area where a retail broker can really gain an edge."
Growing a book
To build a presence in the niche, Rowland says agents and brokers need to know the market and build relationships with insurance providers that align with client needs. "It's important to be aware of various market segments and which providers work in each space," he adds. "Partners that offer product differentiation through services, coverage and knowledge can be a big help."
McDonough concurs. "Most important is to educate yourself on the products available to your client or prospect and its particular niche," he says. "Understand the market. Know where to get the appropriate coverage. And be prepared to discuss differences with any potential client." Dolce adds, "Know the particular coverages that may appeal to the hotel and resort insured."
Rowland recommends building segment expertise by creating and implementing a multi-faceted plan. "Join local hotel associations," he advises. "The American Hotel & Lodging Association is the best-known national association and agents can buy a list of hotel companies from them." He also recommends subscribing to Hotel Business or other trade magazines and signing up for digital newsletters.
"Ask around and Google 'best insurance providers' for the segments you want to pursue and build relationships with providers you think can help," Rowland adds. "Then build a marketing plan around your target list of prospects. Learn to be an expert in the space and gear your marketing around education rather than self-promotion or price."
Once coverage is bound, McDonough points out, coverages and pricing comparisons are mostly forgotten. "To keep customers and keep them happy, brokers should maintain an ongoing, mid-term focus on risk management," he says. "This not only integrates you into the insured's business, but it ultimately can save the client from claims and potentially higher insurance premiums."
Dolce recommends participating in engineer or loss control visits and using information to build expertise and drive customer improvement. "When agents participate in the survey, they gain better understanding of the different components of the hotel industry-food and beverage, front of house, maintenance, housekeeping, you name it," he notes. "They learn and understand the exposures of each department and can use that information to bring valuable insights to that hotel and the next one they go after."
Agents and brokers can supplement the initial visit with follow-ups at safety meetings. "We very much encourage that, and the hotels and resorts always welcome it," Dolce explains. He also encourages agents and brokers to share carrier or program administrator materials-anything from a white paper on proper hotel video surveillance, to managing contracts, to how to complete an incident report.
Rowland says, "The best buyers in this space value agents and brokers who are knowledgeable about the industry. Build expertise by conducting ongoing research and making sure you're proficient in industry vocabulary." He recommends a website, j.mp/HTerms, which lists relevant terms to know.
He suggests developing a newsletter to deliver educational content to clients. "Keep them informed about claims trends and other insurance issues that will impact them," he advises. He also recommends adding value by conducting quarterly claims reviews with clients.
McDonough sums up success like this: "Specialization makes a difference. Agents and brokers really need to understand the nuances and the needs of the segment and then respond."
The author
Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.
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