How to Navigate Short Term Rentals
with Rob Bowen of Patriotic Insurance Group and Grant Anderson of Proper Insurance
The craziest thing about Airbnb is the sheer size of the market, and yet it has no hard assets. Business models such as Uber, Airbnb didn’t exist even ten years ago, and they don’t have the assets and huge expenses many other companies are saddled with.
Their assets are their hosts, and the houses that their hosts own or rent. In the insurance world, before that short-term rentals were just ignored. But once Airbnb started taking off insurance companies started taking notice in the last five years or so. The fundamental issue at hand is that a standard homeowner’s or landlord policy, which is the type of policy you would have for a long-term rental property has language in it that excludes business activity. That is really what’s changed in the last five years, insurance carriers have realized that listing your property on a short-term rental platform like Airbnb is going to amount to business activity at the property.
This goes beyond just denying a claim having to do with the short-term rental, the language around the business activity, exclusion in a homeowner’s or a landlord policy is actually broad to allow them to deny, in fact, any claim that arises. So yes, if a guest starts a fire that burns the house down, that is going to be denied. But also, the freak electrical fire that happens when the property is vacant, can also be denied using that language. At the end of the day you need to replace your homeowners policy with something that allows for this business activity that’s going on at the property.
A policy through Airbnb is not your answer here.
When Airbnb started, there was nothing in the marketplace. There was no insurance company out there that correctly covered an Airbnb property. Airbnb started offering insurance directly because the market wasn’t filling in the gaps. Airbnb then had a huge incentive to get people to use their platform. Part of the concern for people was am I correctly covered from an insurance standpoint?
In response, Airbnb created both their host property protection and their host liability protection. The liability protection of course is protection for if you get sued. What they were trying to do was step in and solve the insurance problem for you. While it’s nice that your booking platform might be trying to solve your insurance problem for you at the end of the day, you need a real insurance policy with your name on it that covers you for what you are doing at the property.
Example: You are getting sued for 500k for a slip and fall, or you have a pipe burst and the wall bursts with it and you need coverage to replace the water damage. You’re filing a claim on your insurance policy. Yes, Airbnb will cover some claims, but you will quickly realize that particularly for the big stuff, like the fire or the lawsuit, you can’t be relying on the booking platform.
Airbnb is not really selling you a policy, they’re just adding you to their already existing policy. With that type of policy, there are no policy rights. They do hold a policy through some insurance company that covers them if they want to make claims on this. But at the end of the day, they have no duty at all. It’s a marketing guarantee pat on the back saying “we got you”, but they don’t have to.
What kind of policy should you have?
Commercial policy. Say it with me… commercial insurance for my Airbnb… commercial insurance for my Airbnb…
What insurance agencies have started to do, is create something that would replace your homeowner’s policy. Your normal homeowner’s policy is going to cover things like water, damage, wind, and hail claims, backup of sewers and drains, fire, tree falls on the roof, those kinds of things. Then we’re also adding in both accidental and intentional damage by the guest. Accidental damage would be things like they leave the stove and that burns the house down, and intentional damage would be things like theft and vandalism. This also covers an important component that a lot of hosts don’t think about, income coverage. This is incredibly important if these hosts are relying on the Airbnb revenue in order to make their mortgage payment. If now you have a situation where the house has burned down, you are still on the hook for that mortgage payment, but you now have no Airbnb revenue coming in. A commercial policy like we do is going to directly replace dollar for dollar your revenue you were making on the property so that you can still make your mortgage payment. The most important part of all of this is the million dollars in commercial liability coverage which is in force to respond to bodily injury or property damage that you’re liable for as a result of running your Airbnb business.
The directive in the policy language says that the insurance company is to pay the actual loss sustained, but it does not define how that’s to be calculated. When a loss has occurred, it is up to the claims adjuster to request whatever the best information available is and make a determination what the actual loss sustained is. The best way to provide that information would be historical revenue data from your Airbnb property. In the event of this loss, you’re just going to provide the claims adjuster with proof of what you would have made during the next X number of months while the property is out of commission.
Not sure if your Airbnb is insured properly? Ask your agent! At the time of a claim is not the time to realize your policy does not include your rental!
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About Rob Bowen
Founder and CEO of Patriotic Insurance Group and Financial Services Professional at True North Financial Solutions.
Prior to opening my insurance agency I held various management positions at Fortune 500 Financial Services companies. I am a US Navy Veteran, BNI Rainmakers Chapter Member, and American Legion Vice Commander.