As the sharing economy grows in popularity, particularly short-term rentals, it is important for brokers to ensure their clients are offering the service with a robust risk prevention mindset in place.
“During the summer season, short-term rental use skyrockets, which also opens up the possibility of incurring a loss,” said Michelle Allemang (pictured), manager, personal insurance at Burns & Wilcox.
In a conversation with Insurance Business, Allemang spoke about how crucial it is to invest in adequate liability coverage and technological advancements when offering rental properties, emphasizing the need for proper broker risk assessment services.
When choosing to venture into the property rental space, Allemang recommends a broker and their client review their homeowner’s policy to see if there is any liability carved out for business opportunities.
“Making sure the declarations page very clearly states short-term rental activity or tenant exposures are good clues that this type of occupancy has been taken into account,” she said.
It is also important to review the types of coverage that are written into the policy and pinpoint any exclusions, including rental income loss, additional living expenses (ALE), and ownership exposure.
Having sweeping protections, especially extra liability coverage, is pertinent for individuals renting out their personal homes or cottages to prevent against any potential claim. Some potential losses that can arise include trips and falls that result in injury — these types of events increase in frequency if there is a pool on the premises.
“There’s really no ceiling for these types of claims, especially in the highly litigious culture that we have,” Allemang said.
For high-income clients, Allemang cautions that the liability coverage should be in line with their net worth and include rental activities.
Clients using rental service platforms, especially Airbnb, are offered certain coverage packages to provide a level of protection, but they only cover up to $1 million in losses. It is important to purchase additional liability insurance, she suggested, to work in tandem with any pre-existing coverages.
“We want to limit any grey area,” Allemang said.
Implementing sweeping precautionary methods is essential to avoid loss and guarantee a safer rental space for tenants.
“Some of these mitigation steps are simple, including installing cameras around the premises to be able to monitor activity, while also having safes to stash away valuables,” Allemang said.
Brokers should also be vigilant of the types of exposures that are present, whether it is a pool on the premises or a wood stove that should be decommissioned to avoid any fire-related loss, especially as wildfires rage on across the nation.
Allemang recommends a thorough screening of tenants to decipher whether they would pose any threat to the location, while also performing regular in-person visits and inspections.
As an extra precaution, technological innovations are being introduced into the market that can mend any additional vulnerabilities.
“There are now heat detection devices that showcase whether there are more people in a space than what was previously agreed upon,” Allemang said. “We’re trying to adopt these technologies and build credits into policies, if possible, to avoid rowdy party scenarios that can be pretty destructive.”
The sharing economy has been steadily gaining in popularity, especially in today’s volatile economic environment.
“Rising interest rates, which are affecting monthly mortgage payments, are prompting individuals to explore this area of revenue,” Allemang said.
While rental insurance may be a more complex space, it is also very common. There is an abundance of capacity available to those who are interested, especially for properties within metropolitan zones.
“Canada is still very competitive and we’re seeing that markets are getting very comfortable with this type of exposure,” Allemang said.
However, rental spaces in more remote or forested areas, may see premiums affected due to the potential for catastrophic natural disaster losses. Wildfires have become especially problematic, which is lending itself to more predictive modelling being used for properties in higher-risk locations.
“Homes or cottages in remote areas, especially high value properties with no immediate fire response available, are experiencing rate increases,” Allemang said.
“It is hard to view this marketplace as a monolith, especially with how expansive the country is. Each region presents its own risk and policies are underwritten to reflect that.”
