In today’s technologically advanced world, entrepreneurially minded homeowners, landlords and even renters have a unique opportunity to rent out their home, spare bedroom or other accommodations through Airbnb, an online hospitality company.
For travelers, Airbnb is a convenient platform that provides affordable and flexible alternatives to hotels. For home owners and tenants alike, the service connects various rental units with perspective occupants and makes collecting payments simple and secure. For the average homeowner, spare rooms that are otherwise vacant can easily be transformed into a source of income.
In 2007 in San Francisco, two roommates and former schoolmates, Brian Chesk and Joe, were struggling to pay rent for their loft apartment. They came up with the idea of putting an air mattress in their living room and turning it into a bed and breakfast.
Initially the goal was just to make a few bucks, but in February 2008, they joined forces with Nathan Blecharczyk, another former roommate, and started a new venture, called AirBed & Breakfast. Shortly after, they put together a website which offered short-term living quarters, breakfast, and a unique business networking opportunity for those who were unable to book a hotel in the saturated market.
Today, Airbnb is valued at $30 billion, has over 100 million users and 640,000 hosts sharing their property, some 2.3 million listings, averaging 500,000 stays per night in 191 different countries. (Photo from Air Bed & Breakfast.com)
The site Airbedandbreakfast.com officially launched in August 11 2008.
Since then, they have revolutionized the hospitality industry. Today, Airbnb is valued at $30 billion, has over 100 million users and 640,000 hosts sharing their property, some 2.3 million listings, averaging 500,000 stays per night in 191 different countries.
Millennials and Generation Z have been quick to embrace this home-sharing idea. Millennials already account for roughly 60 percent of all guests who have booked on Airbnb, and the number of Millennials has grown more than 120 percent in the past year. What is more amazing to me as a safety and risk management consultant is that over 54 percent of those using Airbnb are females.
The Baby Boomers have also gotten onboard as well. Today home sharing on Airbnb brings the typical U.S. host aged 65 and older an extra $8,350 a year, equal to a 52 percent increase over typical Social Security income.
Despite its convenience and the potential for profit, Airbnb is not without its risks for those who decide to list their accommodations.
When you are hosting on Airbnb, you have to remember that you are literally inviting complete strangers into your home. And if you’re only renting part of your unit and you’ll be staying there as well, you are going to be spending nights with complete strangers under the same roof in your home. If the idea of that makes you feel uneasy, you’ll need to think long and hard about hosting on Airbnb.
Unless you own your home, you’ll need to think carefully about how you want to approach your landlord before hosting on Airbnb. Yes, some folks host on Airbnb behind their landlords’ backs I would strongly urge you to NOT do that because you may be breaking your lease agreement. Nothing kills an otherwise good Airbnb deal faster than an angry landlord.
Outside of personal safety, you are exposing yourself to other risks by hosting on Airbnb. You’re putting your property at risk of theft. You’re at risk of renting to a squatter. You’re also putting yourself at potential liability risk if your guests get injured or if they damage other property or injure neighbors.
If you are considering renting your property through Airbnb, your first step should be to contact your insurance agent to review your current homeowners or renters insurance policy. Relying strictly on such policies while hosting guests through Airbnb can lead to significant gaps in coverage and leave you financially vulnerable.
While your homeowners or renters policy may allow you to rent your property to a guest, it is important to keep in mind that each insurance company has its own restrictions and requirements. For example, some insurers may require advanced notice of any short-term rental, whereas others might insist that you purchase an endorsement to broaden your coverage.
Standard homeowners and renters insurance policies are designed for personal risks, not commercial use. If you plan to rent out your residence on a regular basis, many insurance companies will consider this commercial use.
In many cases, regular Airbnb hosts will need to obtain a commercial insurance policy in order to be properly covered. It should be noted that a growing number of insurance companies now offer home-sharing liability insurance policies that can be purchased on a month-to-month basis.
Even more alarming, your homeowners or renters policy most likely won’t consider damage to your property caused by guests a covered peril. This means you could be left to cover the cost of property damage caused by Airbnb guests.
Airbnb offers its clients two forms of protection through its host guarantee program and host protection insurance. While hosts may be inclined to rely exclusively on these programs to manage their risks, there are significant gaps related to these offerings.
Host Guarantee
Airbnb backs all of its bookings with its host guarantee program at no cost. Airbnb claims that this program will reimburse eligible hosts for damages up to $1 million. However, Airbnb readily admits that its host guarantee is not insurance and should not be considered a replacement for homeowners or renters insurance.
Moreover, payments through the host guarantee are subject to a lengthy list of terms, conditions and exclusions. Therefore, hosts should be aware of the following issues related to Airbnb’s host guarantee:
— Hosts must attempt to resolve any issues with the guests involved prior to receiving any compensation. This also means that a host would have to make a claim on his own insurance policy before Airbnb would intervene.
— Any sum collected from a standard policy or a security deposit would be deducted from the host guarantee.
— The guarantee will only repair or replace covered property that is damaged during the time frame of an online booking.
— This guarantee does not cover certain items including, but not limited to, cash, collectibles, jewelry, pets, watercrafts or any damage to property that is not considered a covered accommodation.
Host Protection Insurance
In addition to its host guarantee program, Airbnb offers coverage to its patrons through its host protection insurance. Airbnb indicates that the program provides primary liability coverage for up to $1 million per occurrence in the event of third-party claims of bodily injury or property damage.
Despite Airbnb’s claims, hosts should be wary of relying solely on this insurance program for a number of reasons:
— Intentional acts that aren’t the result of an accident are not covered under this policy. In addition, Airbnb’s home protection insurance does not cover what it refers to as property issues, which can include things like mold, asbestos and bedbugs.
— Neither Airbnb’s home protection insurance nor its fine print is readily available for review. What’s more, the policy is subject to limitations, conditions and exclusions. Together, this means that specifics around coverages are vague, and Airbnb hosts may not know what’s protected.
— The personal property of any guest is generally not covered. Additionally, any theft or damage caused by a guest may not be covered either.
With Airbnb’s host protection insurance, it’s best to assume that you aren’t equipped with the proper coverage. For full protection, it is likely that you will need to speak with an insurance professional to better understand the policy adjustments you will need in order to be fully covered.
While Airbnb offers a unique and potentially profitable service to users, it’s not without its faults. Before you decide to try it for yourself, be sure to consider all of the risks. Again, you’ll want to minimize potential financial fallout by purchasing the appropriate insurance coverage.
To discuss your options further, contact your insurance agent.
Be Safe My Friend.
Keven Moore works in risk management services. He has a bachelor’s degree from University of Kentucky, a master’s from Eastern Kentucky University and 25-plus years of experience in the safety and insurance profession. He lives in Lexington with his family and works out of both the Lexington and Northern Kentucky offices. Keven can be reached at kmoore@roeding.com.
