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Why Boutique Hotel Owners Require Customized Insurance Coverage

Like all hotels, boutique hotels need multiple insurance coverages, but they may also need additional coverages such as property insurance for refurbished historic properties.
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why boutique hotel owners require customized insurance coverage

The boutique hotel industry has been growing in popularity as consumers continue their quest for more personalized, unique and localized experiences. After rebounding from the impact of the COVID-19 pandemic, independent boutique hotels have been outperforming other hotel classes in terms of occupancy and revenues, according to The Highland Group's “Boutique Hotel Report 2023."

Over the past five years, revenue for the boutique hotel industry has grown at a compound annual growth rate (CAGR) of 7.7% to $34.8 billion, including an expected 4.5% increase in 2024, according to IBISWorld. While the pandemic may have crippled the travel industry, it raised the profile of the boutique sector. Today, more travelers are seeking out smaller and more authentic places to stay.

A boutique hotel is typically a small, stylish, independently owned hotel that has a distinct character, fashionable design and decor, and offers more personalized service than that afforded in a traditional hotel chain.

“Since 2020, we have seen a steady growth in the boutique hotel industry, primarily outside of the large major metropolitan cities," says John Welty, president of SUITELIFE Underwriting Managers. “The average occupancy rate is just under 70% for the industry, and it's predicted to go up one-tenth of a percent over the next couple of years."

The industry has seen the number of boutique hotels in the U.S. grow 14.2% per year on average from 2018 to 2023, according to IBISWorld. This growth offers opportunities for independent agents to specialize in a niche sector of the hospitality market and to offer boutique hotel owners the insurance coverage they need.

“When we're talking about boutique hotels, we really need to understand the nuances of that risk," says Dustin Ritch, strategic risk adviser at World Insurance Associates LLC. “What additional coverages can be provided? Is there a garagekeepers or an innkeepers exposure, or possibly a professional liability exposure because of a spa?"

Like all hotels, boutique hotels need multiple insurance coverages. “They need property insurance and that includes machinery coverages," Welty says. “Additionally, from a property standpoint, a number of the original boutique hotels are refurbished historic properties, and with a historic property, you need to think about what the limitations are."

Historic property insurance may be essential for properties built before 1950 and listed on the National Register of Historic Places or a state or local register.

Further, “you need to think about what the protections within that boutique hotel are. For example, is the hotel partially sprinklered? Are there multiple means of egress?" Welty says. “Some boutique hotels have wood-burning fireplaces, others have gas fireplaces. And there's a difference between the two because with a gas fireplace you have carbon monoxide risk but with a real fire you have other risks."

Liquor liability is another coverage that many boutique hotels require when offering alcohol on the premises. Bars allow the hotel to offer services that many people look for while on vacation and can also be a great source of revenue. However, bars also open up a hotel to lawsuits stemming from overserved guests.

Despite the growth in the boutique hospitality industry, it has not been immune to the current hard insurance market. “Carrier appetites have tightened," Ritch says. “Especially in the admitted market where carriers are really looking for best-in-class ratings and underwriters are looking at the average daily rates, as well as locations that are over 80% occupied."

“We're also finding excess limits for umbrella coverage being reduced down to the franchise requirements," Ritch continues. “And importantly, we're seeing exclusions pop up for risks like assault and battery, sexual abuse and molestation."

The hospitality market “goes through various trends every three or five years—the new trend is luxury boutique hotels," Welty says. An agent that specializes in the boutique hotel market can ensure they meet “the needs of the insured by understanding what drives profitability for the insured," he adds.

Olivia Overman is IA content editor. 

Monday, July 8, 2024
Big I Markets