Bed & breakfasts — A growing niche
Demographic, economic trends favor the quaint hospitality of B&Bs and country inns
By Edward O’Hare
As the summer season starts, bed and breakfasts and country inns across America are gearing up for a banner year—providing travelers and vacationers with popular amenities that were formerly available mainly in big hotels. Among other things, these include spas, pools, gourmet dining and complimentary Internet access.
Helping to drive this expanded hospitality effort is an industry trend towards more liberal underwriting criteria, according to Smith, Bell & Thompson, Inc., of Burlington, Vermont, which serves as managing general underwriter (MGU) for Swiss Re’s program to insure these inns.
It seems a perfect fit. SB&T is located in the heart of one of the nation’s largest concentrations of B&Bs and country inns. “We’re so close to these inns, we consider their guests our neighbors,” says Carolyn Kovac, vice president and manager of the program. “We understand the challenges involved in owning and operating a hospitality business.”
Although the program has been up and running for just two years, Kovac says the connection with Swiss Re has made SB&T a leading insurance player in this hospitality universe. Functioning somewhat as a Swiss Re branch office, SB&T is authorized to do all underwriting, quoting and policy issuance. The agency will also take the first call on a claim.
Since each bed and breakfast and country inn is unique, exposures can vary enormously.
“This is not simply a glorified homeowners policy, or a commercial policy developed for other businesses,” says Jay Best, underwriting manager. “It’s a comprehensive insurance program designed specifically for bed and breakfast and country inn owners. We recognize the unique character of these inns by offering a wide range of optional coverages for insuring both the personal and business exposures of the inn owner.”
Many inns include amenities such as restaurants that are open to the public, as well as facilities for wedding receptions and business meetings, among other activities. A long list of enhancements to the standard insurance forms is automatically included with most policies.
In this competitive environment, Best says that these inns continually strive to get more business by catering to particular interests. Each inn takes advantage of local surroundings in order to attract tourists to its particular locale. One inn may be near a ski area and cater to that clientele, whereas another inn may be situated near a quiet, peaceful lake and cater to those who want to get away from the busy life of the city.
One of the key challenges facing agents and brokers in this line is determining the value of the building and its contents in order to come up with the proper replacement coverage. Best notes that some of these buildings were mansions built in the 19th century and underwent extensive and costly structural changes in converting to B&Bs/inns.
In the event of physical damage to these buildings, the owner of the inn may be subject to local building ordinances or laws that may have a significant cost impact on the replacement of the damaged and/or undamaged portion of the buildings. Innkeepers also need to be aware of the building modification that may be required due to ADA regulations.
In building business, Doug Grahn, director of marketing, says SB&T uses a two-tiered marketing approach: directly to B&Bs/inns through trade publications, association Web site ads, direct mail and conventions—and to agents and brokers through e-mail blasts, print ads, direct mail and conventions. “Unlike some programs,” says Grahn, “we exclusively write business through insurance agents and brokers, so all B&B marketing leads we receive are referred to brokers we partner with for follow up.”
While B&Bs and country inns originated in England, it’s anyone’s guess when the first ones opened in America. Some versions may have started during Revolutionary time—providing a place to sleep and a quick breakfast to some of the Founding Fathers on their way to Philadelphia; others perhaps catered to Pony Express riders carrying the mail between St. Joseph, Missouri, and San Francisco.
What’s not in question is the role B&Bs/inns currently play in this multibillion-dollar-a-year hospitality industry. If there is strength in numbers, this industry has it with an estimated 19,000 such inns operating in every state in the country. And that number continues to grow. From an insurance standpoint, Grahn says they comprise an interesting and challenging class of business. Some are former train stations, lighthouses and historic mansions, while others use innovative themes such as ghosts on the premises and Elvis Presley-styled rooms. Still others have wedding chapels on the property.
As the busy travel season starts, Kovac believes 2008 could be a productive year for SB&T and a record year for B&Bs/inns, with business coming from three main groups. First, there are the retiring Baby Boomers, many of whom prefer to stay at these inns to experience the local character, culture and charm of a particular region. Second are the vacationers, who may be discouraged from going abroad because of the weak dollar. And third, there are the foreign tourists, particularly Europeans, who believe that now is an ideal time to see America while benefiting from the high exchange rate for the Euro.
That forecast is supported by Jay Karen, CEO of the Professional Association of Innkeepers International (PAII), whose study shows that the annual occupancy rate for B&Bs/inns was 43% in 2006, growing about 5% from 2005. “The research we see from the travel industry is telling us that, despite the sluggish economy, Americans are not going to give up their vacations in 2008 and that people will be taking shorter trips. Our industry stands to possibly gain from all this.
“We’re the perfect drive-in vacation, as the B&B just 30 miles away can feel like 3,000 miles away,” he continues. “And we’re actually seeing an increase in European visitors to the U.S., which seems to be aiding the U.S. travel and leisure market a bit. Europeans love B&Bs, so the dollar exchange should benefit us.”
In 2007, some 57 million foreigners, their pockets bulging with Euros and other strong currencies, visited America, spending $123 billion, according to the U.S. Department of Commerce.
Founded as a traditional independent insurance agency in 1928, SB&T is now the largest agency in Vermont. Along with its Managing Agency Group division, with offices in Hartford and Shelton, Connecticut; and Syracuse, New York, they maintain marketing relations with more than 5,000 independent insurance agencies. SB&T/MAG administers a wide array of specialty programs, and reports annual written premium volume in excess of $200 million.
Besides playing a key role in the business life of Vermont, SB&T stands out for its involvement in charitable activities. For example, each spring it sponsors a benefit concert to support the Cancer Patient Support Program in Burlington. The sixth annual concert, named “Cabin Fever Reliever,” was held in April and attracted more than 500 people.
Grahn, who started the benefit after a close family member recovered from cancer treatment, says, “Every dollar raised from ticket sales goes to local cancer patients and their families in financial crisis situations. All the overhead is covered by SB&T and our co-sponsors. It’s now become one of the largest dance concerts in Vermont, and we’ve been especially fortunate to have Elisabeth Von Trapp, granddaughter of Baron and Maria Von Trapp of “Sound of Music” fame, join us for guest appearances several times.”
Kovac says that B&Bs and country inns can be a lucrative niche for agents and brokers seeking new sources of income, and that the SB&T Web site (www.sbtinsurance.com) includes a supplemental application, which is detailed enough for a quick study of B&Bs/inns, enabling them to confidently evaluate a risk.
Chris Skultety of Hix Insurance Associates, Inc., in Boulder, Colorado, reports that their business includes nine B&Bs and four lodge and cabin accounts. To gain information about the industry and build up contacts, Skultety joined the B&B Innkeepers of Colorado (BBIC). He found that innkeepers who are members of the association are more professional and likely to own and operate high-caliber inns that adhere to association guidelines to keep their properties safe and in good condition—hence good risks to insure.
He praises SB&T for providing a highly competitive product tailored to the particular risk and for delivering fast and personal service. In competing in this soft market, Skultety says he is helped by SB&T’s broad form that includes guaranteed replacement costs on buildings and loss of income, expenses to relocate guests in an emergency, as well as coverage for upgrades. He also makes frequent personal visits to his clients to determine if there is a need for change in their coverage.
For agents seeking to develop a niche in this specialty line, Skultety encourages them to contact SB&T and take advantage of its competitive program. On their own, he suggests they join B&B trade associations where they can network with members to learn about the industry, as well as browse the Internet for potential clients. And he says agents can also visit B&Bs/inns in their area and discuss with their owners the benefits of the SB&T program. *
For more information:
Smith, Bell & Thompson, Inc.
Web site: www.sbtinsurance.com