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Is your Airbnb property insurance compliant?

31 Jul 2018

Airbnb, the service that allows you to turn your residential property into a guesthouse, has enjoyed phenomenal growth in South Africa over the last few years thanks to daily holiday rentals that can be more lucrative than long-term letting.

"In addition to the usual cover for fire and special perils (water, storm, hail damage, etc.), a policyholder needs to ensure that the cover provided is extended to include malicious damage and accidental damage," says Hay.

However, according to Standard Insurance Limited, many budding Airbnb entrepreneurs could be inadvertently falling foul of their insurance policies.

What many people do not realise is that their standard residential, or ‘Personal Lines’, insurance policies typically only cover the property if it is being used for private residential purposes.

According to Louis Hay, Head of Short-Term Insurance Propositions at Standard Insurance Limited, it is important to note that while Airbnb does offer hosts a ‘host guarantee’ which protects them against damage to personal possessions, the unit or home by guests, the guarantee is not insurance, and does not replace your homeowner’s contents insurance.

“Airbnb’s host protection insurance, in contrast, is insurance, and is designed to cover hosts in the event of third-party claims of bodily injury or property damage, but will only act as primary insurance coverage for incidents related to an Airbnb stay,” he says.

“Regardless of these offerings, renting your property out for short-term holiday rentals, whether over Airbnb or an alternative service, will in all likelihood require a ‘Commercial Lines’ insurance policy, with cover that adequately reflects the different risk profile of such rental arrangements.”

Hay says policyholders who rent out rooms in their houses or their properties need to be aware of their obligations under their insurance policies - it is the duty of the policyholder to disclose to their insurer that they are renting out their rooms or properties to holidaymakers or tourists. Failure to make such disclosures may prejudice the policyholder in the event of a claim.

According to Airbnb statistics, South Africans hosted close to 800 000 guests via the online service in 2017 compared to 400 000 in 2016, 133 000 in 2015 and 38 000 in 2014. So successful has the uptake of the service been in South Africa that certain destinations, most notably the City of Cape Town, have called for regulation of the service and claimed that city dwellers cannot make use of it without their municipality’s express permission.

“The administrative task of dropping off and collecting keys for guests, arranging a cleaning service and providing appropriate security can be a taxing exercise. In addition to these hassles, many hosts may not have the appropriate insurance policy in place,” says Hay.

“Traditional personal lines insurance policies do not provide cover for incidents and theft that may occur while the home is being rented to holiday makers, tourists or travellers. The owner must ensure that what they are doing is legal and be aware of the city regulations and municipal bylaws, which often do not allow blocks of flats to be used for tourist accommodation. Then there are also other considerations like adhering to the appropriate zoning, as well as the insurance implications and security risks involved.”

Hay adds that policyholders must take the time to fully understand the limitations and conditions that apply to their policies to avoid any heartache in the event of a claim. Airbnb hosts will need a commercial lines insurance policy, which would cover the building and contents, the rental income as well as the Property Owner’s liabilities.

Hay discusses items that require consideration when policyholders opt to insure their property on a commercial lines insurance policy:

Buildings and contents

Hay says in addition to the usual cover for fire and special perils (water, storm, hail damage, etc.), a policyholder needs to ensure that the cover provided is extended to include malicious damage and accidental damage.

“It is important that the policyholder ensure that they comply with any specific warranties, conditions or exclusions that the insurer may have in respect of the rental property. An example of an exclusion would be that theft of contents cover would only apply in the event that there are signs of forcible and violent entry into the buildings, i.e. disappearance of items would not be covered,” says Hay.

“Most policies would exclude, or at least limit, cover for loss or damage to guests’ or tenants’ property. It is therefore recommended that the rental agreement specifically excludes liability for any loss of or damage to the tenant’s property.”

Loss of income (business interruption)

In the event that the property is damaged and therefore cannot be rented out, Hay says the policyholder would incur a loss of income (business interruption) for the duration of the repairs.

“Some policies provide loss of income until the property is repaired to a tenantable condition, and other policies may extend the benefit to the point of the property being tenanted. Separate rental guarantee insurance policies are available from specialist insurers to cover the policyholder in the event of a tenant not meeting their rental payment obligations,” he says.

Public liability

Hay says property owners are required to keep their premises free of defects, and should such a defect lead to a third party, such as a tenant, being injured or their property being damaged, the property owner may be faced with a legal liability to provide compensation to the third party. Some premises are rented out with meals included (e.g. dinner, bed-and-breakfast), and therefore the public liability policy should be extended to include the products liability extension to cover exposures relating to, for example, food poisoning.

Finally

“The above items only highlight some of the risk exposures that a policyholder may face when renting out their properties. Standard Insurance Limited therefore strongly recommends that an insurance broker be consulted to assist with the structuring of an appropriate insurance policy to cater to a prospective policyholder’s specific needs,” says Hay.

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