Homeowners may see using short-term rental units or spaces to gain extra income through platforms like Airbnb as a great deal, but there are risk and insurance issues that those offering these rental opportunities should be aware of, according to Daniel Ivans, RATEDOTCA’s insurance expert and licensed insurance broker.
“If a consumer is participating with Airbnb or another short-term rental service and they fail to disclose this exposure to their insurance broker, the potential exists where if they have a claim that could be denied, the policy itself could be cancelled for underwriting reasons, or even misrepresentation in some cases,” he said.
“However, I don't think your average consumer wants to expose themselves by not having coverage in the event of a loss because they fail to disclose a business on their premises or by offering short term rentals.”
Ivans also noted that some insurance carriers may not be writing coverage for the risks associated with Airbnb or other short-term rental opportunities in their homeowners’ policies, making working with a broker to arrange an appropriate insurance policy crucial.
“Airbnb and similar services are still fairly new services on the market and there’s a whole new level of exposure and liability when you allow strangers into a property you own,” Ivans said. “It’s best to make sure that, as a broker, all aspects of both home and auto insurance and the accompanying exposures are disclosed to you in order to find the right protection, especially if capacity is limited.”
According to a recent report by RATESDOTCA, Airbnb offers $1 million USD in host liability coverage if they are found legally responsible for a guest getting hurt or their belongings being damaged or stolen while they are lodging in an insured’s property.
It also covers damage to or theft of property belonging to a guest and damage caused by a guest to common areas, such as building lobbies and nearby properties.
Furthermore, the company also offers AirCover for Hosts, which provides hosts with a $3 million USD coverage if there is:
Aside from homeowners’ policies not covering short-term rental business opportunities, Airbnb’s coverage also has certain shortcomings that consumer’s need to be made aware of.
Airbnb does not provide coverage for any damages or injury resulting from acts done intentionally, damage from everyday wear and tear, loss or theft of currency, or damage done by extreme weather, such as earthquakes, tornadoes or wildfires.
Host protection insurance is designed to cover hosts in the event they are the subject of a third-party lawsuit. For example, if a guest damaged a neighbour's property, this insurance may apply to such a scenario, though a claim might be denied if the damage was done deliberately.
“Anything that might indicate to the broker that there is a potential short term rental situation, a broker needs to do their best to call out the potential exposure that might exist so that the consumer knows that there's a chance that they might not be properly covered,” Ivans said.
This is especially true on the homeowners’ insurance side, as a standard home policy won’t cover an insured if they are engaged in illegal activity that suggests noncompliance with local laws and regulations that apply to home-sharing in your city.
For example, in Toronto, it is required that any person or entity offering short-term rentals of 28-days or less, excluding hotels and motels, are required to register with the City for a license and collect and remit a six per cent (6%) Municipal Accommodation Tax (MAT) on all rentals.
An insured does not need to have guests booked in order to violate the policy — simply posting the listing is enough.
“It's always best practices a consumer to make sure that all potential exposures are identified so that a consumer can make sure that they are properly protected in the event of a claim and that a broker can impart right kind of advice depending on what your scenario is,” Ivans said.
How well do your clients understand short term rental and Airbnb risk? Sound off in the comments.
