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Big brand hotels give the customer the exact experience that they expect. When you go to one in Florida, it’s essentially the same as going to one in Ohio.

Boutique hotels are normally a bit more unique and offer an experience that is customized to that hotel in that area. Of course, many of those are being purchased by larger organizations and are becoming more of a brand extension.

The bed and breakfast (B&B)is another kind of lodging altogether. It harkens back to hospitality in the past when inn owners lived at their inn and essentially welcomed people into their homes and gave them a nice place to stay for however long they stayed. It doesn’t take us all the way back because inns in 1780s America only sometimes offered private rooms or private beds for travelers. At least today, the only thing we might share is a bathroom.

The bed and breakfast offers accommodations that are as much experience as they are a place to stay and because of that, they also have their share of different risk exposures. They have all of the same exposures as conventional hotels and motels. They have guests coming and going. They serve food. Many have an evening wine and cheese (or cocktails) service in the evening. But there are other risks that bB&Bs experience and they need help handling those risks.

One of them is not home sharing (sorry, Airbnb). We are dealing with a traditional bed and breakfast, not home-sharing risks, like Airbnb, VRBO, or any of the other types of services. They bring their own risks to the party and that’s beyond what we want to deal with here.

People who engage in that activity have to deal with the intersection of their homeowners’ insurance and the company’s insurance policies, which may or may not cover all of their exposures, but we will deal with that risk another time.

Market Volatility

Every business must deal with the problem of market volatility. Prices never stay the same. Customer appetites and attitudes change. The economy gets stronger and weaker. Then you might have the random world-level event that cancels people’s travel plans for a year or more. These risks can be more susceptible to market shifts because of the nature of the bed and breakfast risk.

The B&B patron tends to be looking for a stay that is not the traditional hotel or motel. They are also looking for something other than what can be found on home-sharing sites. They’re often looking for a particular experience that comes along with a bed and breakfast stay. This is due largely to the types of buildings that become a bed and breakfast and the type of people who operate them. The bed and breakfast innkeeper is the sort who gets into the business in part because they enjoy the interactions with the customers.

This market volatility can create some troubles for the innkeeper and their risk management strategies (including insurance purchases). Unless the bed and breakfast enjoys a constant or predictable flow of bookings, and therefore cash flow, there can be lean months.

This is something that many businesses deal with and must plan for. But consider how this issue can be compounded if a loss occurs during the lean months. Canceled and refunded bookings coupled with taking the property out of circulation for an indeterminable time all mean that the bed and breakfast needs a strategy to deal with this possibility.

This is more than an insurance consideration. The management of this risk includes ensuring that they have access to capital to bridge that gap. The best method of handling this is with retained earnings, but when you consider that most small businesses operate on tight budgets, that gets difficult.

Neighbors

Many bed and breakfasts are in neighborhoods.

If you’re a traveler, you know that many cities and towns have a particular area where you can find most of the good hotels. There they are, all in a nice, neat row, and across the street are the complementary businesses, like restaurants, gas stations, and other stores. That makes the journey a little easier for the traveler to know that there is access to stuff nearby.

Bed and breakfasts are different. They are often in homes in a neighborhood. This often adds to the vibe of going there. You drive along a lovely tree-lined street with people walking their dogs and children playing in the front yard and then you pull into the drive at this lovely and quaint bed and breakfast. It’s Rockwellesque.

Then you realize that because it’s a big house on a city lot there might be a parking problem. Not every bed and breakfast has ample parking. Some have limited street parking out front, and it’s first come, first served.

Then you have that irritated neighbor who is sick of people he doesn’t know parking in front of his house. Then there’s the possibility of an ordinance that limits street parking from time to time.

An innkeeper should be aware of the potential parking issues and inform guests accordingly to avoid any nasty moments, like towed or booted vehicles. That won’t help the Yelp reviews.

Locating a B&B in a neighborhood isn’t necessarily a bad thing. In many ways, it helps to create the charm and enjoyment of the stay, but it is something that the innkeeper needs to consider and make part of the risk management plan.

Many bed and breakfasts are in older homes.

Part of the charm of many bed and breakfasts is the fact that many of them are in homes that take us back to an earlier time. Many are Colonial, Victorian, and even Gothic styles. There are multiple problems with this.

Older homes have been upgraded over time, but that doesn’t mean that they are ready for today’s lifestyle. The key building systems will be under a different load than originally designed. If the building was built 100 years ago, that family’s electrical use and needs would be very different than 21st-century travelers are. We are certain that the electrical system has been upgraded and updated within the last 50 years, but that still doesn’t mean that there aren’t risks associated with the electrical system and how it’s being used today.

The plumbing system will be under a heavier load than was originally intended. Again, many of these buildings were originally single-family dwellings, and even if they had two or three bathrooms and a kitchen, many modern bed and breakfasts have a bathroom for every room that they are renting out and the owner’s bathroom and a kitchen. This isn’t just going to tax the sewer system, but it can create issues for the water supply lines.

One last issue to consider when it comes to insuring these older buildings — if it were to burn down, would the insured rebuild that exact building? Would they want to rebuild this gem of architectural days gone by? Maybe the answer is yes until they get the quote for the replacement cost coverage needed to build this building back to look just like it does now, or at least reasonably close to the way it looks now.

It’s more likely that they will want to be able to match the look and feel of the place in the event of a partial loss, but if there’s a total loss, they might do something different. Here’s where we begin to talk about policy wording and endorsements and the endorsement that we are thinking about is ISO CP 04 38 09 17 Functional Building Valuation.

This endorsement provides the ability for the insured to select a limit of insurance that is lower than the replacement cost of the building, but it will be plenty to replace the function of the building. So that when it’s rebuilt, it won’t be the 100-year-old bed and breakfast building, but it can serve as a B&B.

But there are two other major things that the endorsement does.

The next thing that this endorsement does for the insured is to provide ordinance or law coverage. If the building is not a total loss, but must be dealt with as a total loss (the municipality declares that the building must be torn down), there is cost for the undamaged part of the building, so this coverage would provide increased cost of construction for code upgrades for the new building, as well as the cost to demolish and remove the debris from the undamaged portion of the building.

There’s one other thing the endorsement will do for the insured. If the building is a partial loss, the endorsement provides that repairs will be made to match the architectural style of the building using modern building materials and methods. When you take that into account, you understand that using this endorsement allows the innkeeper to keep the interesting kind of building that they had unless there’s a total loss.

Just one last note about this endorsement. It also takes the coinsurance condition out of the equation because we are intentionally not insuring the building to its full replacement cost.

Lots of Kitschy Stuff

If you’ve ever been in a bed and breakfast, you know that there is no end to the interesting items that find a home in different places in the common areas and the rooms. My family and I visited one several years ago. There was a chair that had dozens of wires with connections on the end. No one wanted to sit in that chair because we couldn’t figure out what it was.

That brings a final point. Most property policies, commercial and personal, have coverage for personal property. Personal property is loosely defined as the items within the building. There’s more to it than that, but let’s just keep going. The stuff that finds its way into many bed and breakfasts is unusual, like the chair that looked like an electric chair that we didn’t want to sit in.

If we look at the ISO CP 00 10 10 12 Building and Business Personal Property Coverage Form, we find the replacement cost optional coverage. The details about that coverage are beyond our scope here, but paragraph “b” of that coverage is interesting and applicable here.

This Optional Coverage does not apply to: … Contents of a residence; Works of art, antiques or rare articles, including etchings, pictures, statuary, marbles, bronzes, porcelains and bric-a-brac; …

These are the sorts of items that we find in bed and breakfasts and which are going to require special handling so that the insured can be properly indemnified if there is a loss. These are all going to be items that the innkeeper may have picked up at antique stores, estate sales, or covered in dust in the basement and they all have value because they are all property.

That’s why some other manner of covering that property is important. Whether it’s through the use of a personal property policy, which is a lot like a personal lines inland marine policy, or an inland marine policy.

Getting them covered at agreed value would also be helpful so that the insured is happier if something happens to their bric-a-brac (a word here, which means knick-knacks according to the Oxford Dictionary online).

In the end, these risks, like many that we insure, require particular handling. There’s more to consider than we have space to handle and these insureds need to have the help of someone who understands risk in general and their risk in particular.

This is not to say that every agent or broker needs to be an expert on a particular class of risk to serve them, but the more you know about your clients, the more they will trust you to serve their risk needs.

Oh, and if you’re curious, that chair was an old electric permanent wave machine circa 1920s. Look it up. It looks scary and I wouldn’t write the liability insurance on anyone using it.