Exploring Lessor’s Risk Insurance for Short-Term Rentals

Over the past few years, Lessor's Risk (LRO) has consistently been a significant priority for Excess & Surplus (E&S) agents, and for good reason! LRO is insurance for commercial landlords, protecting them from unexpected risks related to their tenants' activities. For insurance agents, LROs offer an excellent opportunity to expand their client base since they are everywhere. Just stroll down any main street in the US, and you'll find plenty of leads. Finding the right LRO package for clients can be a challenge for agents. Buildings come in all shapes and sizes, and LRO policies reflect this diversity. Depending on the tenant's operations, they can cover many risks that other habitational policies may not encounter. For example, would you seek the same coverage for a warehouse tenant as a beauty shop tenant? Each policy needs to be carefully assessed - but presented to the client quickly - in this competitive and fast-paced world. In this two-part blog series, we'll dive into how to find LRO coverage for two in-demand LRO classes: short-term rentals and cannabis operations.

The Short-Term Rental Boom

Travel and tourism have always been important to Americans. We're natural explorers, craving new experiences and a break from the daily grind of our 40-hour work weeks. But what's really changed is where we choose to stay. In the past, we'd settled for overpriced hotel and motel chains as they were everywhere, and those big corporations owned the tourism sector with heavy marketing.

But then, in 2008, two roommates from San Francisco needed extra cash. They had extra air mattresses lying around and realized tourists coming to a design conference needed a place to stay. From there, a little bed and breakfast was born - AirBedandBreakfast, now known as Airbnb. Today, over 660,000 Airbnb listings in the United States offer tourist bargains and flexibility that big chains can't match (Stratos, 2022).

With the rise of Airbnb and other sites like VRBO, regular folks like us are getting in on the tourism game. In fact, 70% of vacation rentals are owned by small business owners, making large corporations the exception (Curls, 2023). Look in any major cities or beach towns; they demolish old hotels and motels, building 1-4 family dwellings and condos. These smaller, individually owned vacation properties cater to modern vacationers' needs. For instance, snowbirds who migrate to warm, sunny destinations like California, Arizona, and Florida during the winter or budget-conscious families aiming to save on their big Disney vacation with a house rental. Given recent projections, vacation rentals could generate an impressive $19.3 billion in revenue by year's end (Britton, 2023). This presents a substantial opportunity for insurance agents.

Now How to Write These Rentals

Before we sail off into the sunset, confident in our LRO book, there are a few roadblocks to conquer. First, we're experiencing a hard property market due to natural disasters, social inflation, and reinsurance issues. Admitted carriers are tightening their appetites, avoiding property altogether in high-frequency states like California, Florida, and Louisiana. In addition to this puzzle, property values are skyrocketing due to high demand. A whopping 20% of the homes on Airbnb are valued at over $1 million, a daunting number especially for coastal properties (Koenig, 2023). Add to the fact that admitted carriers implement heavy underwriting practices like crime, brushfire, and roof scoring, making placing these types of risks even harder. The higher the score, the less likely an agent will find a policy.

Second, agents have to consider the turnover of tenants. LRO spaces are mixed-use and have a high turnover rate. Add an unknown frequency of turnover determined by average individual landlords, and you have an impossible equation for admitted carriers. So much so that short-term rental exposures are often excluded from standard dwelling, condo, and LRO policies due to their unpredictability. So, what's an agent to do?

Pathpoint: Your Home for Short-Term Rentals

When it comes to any rental, many agents are discovering that E&S is the path to properly writing these complex LRO packages. The problem is that E&S markets can take too long to sort and navigate through, costing precious time for agents. Understanding this need, Pathpoint delivers general liability and property quotes in minutes for LROs, including short-term rentals. Pathpoint has added innovative, time-saving smart features, including Mix and Match and end-to-end e-signing, to better serve agents on hard-to-place accounts. Recently, we improved our automatic quoting experience to provide agents with solutions for their LRO accounts, like short-term rentals. Our intuitive quoting tool supplies agents with alternative quotes for property if an exposure like a high brushfire score or older roof would otherwise make the risk ineligible. Agents are 20% more likely to obtain a quote, enabling them to spend more time selling policies rather than wasting time receiving declinations. For example, get the general liability you need with Nautilus while receiving the hard-to-come-by property through Vave with a lightning-fast digital platform.

Conclusion

The increase in short-term rentals presents a valuable opportunity for insurance agents to grow their clientele. While the tough property market and associated risks can be daunting, tools like Pathpoint's improved automatic quoting experience facilitate navigating these complexities to secure suitable coverage faster than anywhere else. Agents who utilize these tools and comprehend the specific needs of this expanding market can effectively capitalize on the potential of the Lessor's Risk landscape.

Britton, D (2023, July 25). Short-Term Rentals Real Estate Statistics: Will The Market Thrive At the End of 2023? Doorloop. Retrieved November 1, 2023

Curls, A. (2023, July 26). Top Vacation Rental Industry Facts and Statistics of 2023. Today's Homeowner. Retrieved November 1, 2023, from here.

Koenig, D. (2023, July 26). Airbnb Aims to Convince More People to Rent Out Their Homes. Retrieved November 1, 2023, from here.

(2022, January 4). 2022 Airbnb Statistics: Usage, Demographics, and Revenue Growth. Stratos. Retrieved November 1, 2023, from here.