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Home Sharing and your Homeowners Policy

Uncategorized / August 17, 2016

Airbnb currently boasts more than 2 million home rental listings in 34,000 cities throughout 191 countries. HomeAway is close behind with 1.2 million in 190.

That’s more lodging than any hotel chain in the world.

But while the enormous popularity of home sharing is undeniable, at least one aspect of the disruptive trend poses major concerns: insurance coverage—or lack thereof.

What’s the Problem?

When homeowners or renters head to a home-sharing website to rent out their homes in exchange for income, “most probably don’t think through the fact that they’re beginning to engage in a commercial endeavor,” says Bill Furlong, HomeAway’s head of North America. “When they do that, there are a whole bunch of things they have to check off the list. They have to check local regulations, they have to think about the tax part of the equation and they have to make sure the insurance is covered.”

That insurance piece is trickier than most consumers realize. “Generally, home insurance covers your property, and it’s pretty broad coverage,” says Laurie Pellouchoud, vice president, Allstate property line management, whose company recently released a home-sharing endorsement called HostAdvantage. “But when you have people renting out their home or space in their home, there are some gaps in coverage that generally exist with regards to your personal property.”

Why? It’s simple: “Your homeowners or tenant homeowners policy normally will exclude a business pursuit,” explains Jim Sattler, president of programs at CBIZ Insurance, which developed home-sharing coverage in partnership with HomeAway. “If you’re renting out a property for income or to generate revenue to offset cost, it’s considered that this is a commercial need.”

And as soon as a client creates a business exposure in their home, their homeowners or renters carrier can not only refuse coverage for a related claim—they also “have the right to suspend liability and property coverages,” Sattler explains. “They can discontinue that coverage either at renewal or in some cases prior with a cancellation mid-term, because it changes the exposure from a residential homeowners to now a business vacation rental.”

The resulting lack of coverage can be tremendous. For example, “many traditional policies only offer premises liability,” Sattler points out—and you can usually also forget about replacement costs, business income and more. “There are a lot of little traps or gaps here that people need to be aware of.”

If a guest breaks or steals something, that’s one coverage gap. But that barely scratches the surface of the potential exposures involved with home sharing.

“Think about going up the scale of things that could happen. You could have horrible things happen to the property as a whole,” Furlong says. “There could be a fire, the guests could do catastrophic damage and then you’ve got liability as someone who’s renting out something in a commercial endeavor. What if the guest injures themselves or dies while staying at a property? You have potential liability you have to think about.”

Crafting Solutions

For clients who regularly rent out rooms or their entire homes, the National Association of Insurance Commissioners recommends purchasing a landlord policy to cover the home, structures on the property, property contents, lost rental income, legal feels and liability.

But that approach has its drawbacks—namely, scope and cost. “A landlord policy is really intended for people who have property that they rent out full time,” Pellouchoud explains. “They don’t live there—they have tenants generally on a contract-type basis.”

Fortunately, a landlord policy is no longer the only option for home-sharing clients: Insurers are beginning to realize the trend presents serious opportunities in the personal lines sphere. “We know the home-sharing market is very big,” Pellouchoud says. “It’s probably not growing as fast as some of the ride-for-hire markets, but it is growing. This is not going to go away.”

“One thing we all lack is enough time to do everything we want to do,” Sattler agrees. “Maybe your mom and dad bought a secondary property and now they’re finding that even in retirement, they’re not getting there as much as they want. But the cost still continues. So they say, ‘OK, why don’t we offset some of that cost? Let’s pick up six, seven weeks a year in vacation rentals.’ I see that continuing. It’s a growing market.”

That’s why insurance organizations like Allstate, Lexington and CBIZ Insurance are investing in crafting coverage solutions for the unique exposures home sharing presents. “We are making an investment in it from a standpoint of technology enhancements and marketing alignment with the insurance companies we work with, and we’re doing that because we do see this as a growing marketplace,” Sattler says. “More and more people are looking at the opportunity to utilize vacation rentals not only on their primary but on their secondary properties.”

“The relationship between the insurance industry and home sharing will continue to grow,” predicts Herbert Decuers, underwriter at Insure Response, LLC, which underwrites a home-sharing endorsement for Lexington called LexShare HOME. “The sharing economy is definitely on the rise, from homes and condos to cars and bikes. It would appear that this is something that will be with us for a long while.”

Printed with permission from IAB.