The risks associated with limited service hotels haven’t changed dramatically in the past decade – slips and falls, fires, and assaults still top the list. But how those risks are measured – and who gets to define them – has undergone a quiet revolution.
According to Daniel Murray, chief underwriter at Covenant Underwriters, the shift comes down to data.
“Ten years ago, you would just get the Acord form and be going off of whatever the broker told you,” he said. “Now there's all the big data out there... you know even more about the risks than the brokers or even the hotel operators.”
Covenant, which launched seven years ago, now sees submissions representing about 25% of the limited service hotel market. Its underwriting model leans heavily on data indexing, operational analysis, and third-party metrics such as credit quality and hazard scoring.
“The spectrum between a good [hotel] and a bad one is massive,” Murray said. “You can't commoditize it like a homeowner’s. You've got to be able to select very carefully.”
That selectivity is central to the firm’s philosophy. Rather than pricing risk generically, Covenant parses it with increasing specificity, customizing forms that address exposures often left out of standard insurance packages.
“If you're using a standard ISO form, it's not going to address guest discrimination, communicable diseases, insect bites, sexual misconduct,” Murray said. “We very clearly assign a limit, or sublimit, to those exposures, and we choose those limits to be enough to keep the good operators in business.”
Covenant’s customized approach gained traction through engagement with the hotel industry itself. At AAHOACON – the annual gathering of the Asian American Hotel Owners Association – Murray found validation for their tailored model. One example involved collaboration with G6 Hospitality, parent company of Motel 6, to build a franchise-specific coverage program involving both legal and risk control experts.
That partnership model extends to brokers, too. “We could have those conversations around what are your key replacement and sex trafficking identification training look like at the franchisee level,” Murray said. “Then we can go back to the carrier and talk to the capacity providers and try to get authority for a product that meets those needs.”
Equipping brokers to explain the structure and pricing of policies, he argued, not only helps close deals but improves long-term client retention. “Here's what's available, here's your options, here's how much you can retain on deductibles, here is why the assault and battery is going to cost this much.”
Despite progress in coverage design, geographical risk remains one of the sector’s thorniest problems – especially when it comes to natural catastrophes. “We have a principle that each risk should stand on its own in terms of rate adequacy,” Murray said. “We also don't want a motel in Utah paying for some of the catastrophe exposure for one in Louisiana.”
To that end, Covenant leverages catastrophe modeling and risk segmentation tools made possible by its E&S structure. Premiums adjust according to construction type and regional hazards. As Murray put it, “If you're not charging adequate rates, you create a perverse incentive to continue throwing up very cheaply constructed buildings... in these highly catastrophe-exposed areas.”
One solution may lie in new construction methods. At a recent event, Murray met a vendor offering prefabricated steel frames for hotels – a material far more durable than traditional wood. “I would love if every hotel had these prefabricated steel frames,” he said, acknowledging the challenge of higher initial costs. But he believes insurers can shift the calculus by quantifying the long-term savings.
For Murray, the convergence of data analytics, policy innovation, and proactive engagement defines the future of underwriting in the hospitality sector. “We're much better suited to handle those types of occurrences than the operator themselves,” he said. “They need to get back to their hotel business, but we're not going to put a huge red target on their back for the plaintiff attorney.”
Whether through franchise-level customization, smart risk segmentation, or location-aware pricing, the message is clear: insurers must stop underwriting by default – and start underwriting by design.
