There is no doubt about it – the sharing economy is here to stay. A recent report authored by the Insurance Institute of Canada concludes that the sharing economy will only increase in size and influence. This is due to an ever-growing shift to a mobile lifestyle and a desire among consumers, both on an economic and social level, to share their resources. As the Institute points out, this represents both an opportunity and threat to the Canadian insurance industry over the next five to 10 years.
Recently, rental platforms such as Airbnb, HomeAway, and FlipKey have been the subject of scrutiny as they increase in popularity. There are now 81,000 active listings on Airbnb in Vancouver, Toronto and Montreal, up from 50,000 in May 2016. There has also been a steady uptick in the number of rural and cottage properties available for rent. A recent survey conducted by British Columbia-based Square One Insurance found that 11% of Canadian homeowners rent out a portion of their home to non-family members.
Unsurprisingly, short-term rentals can come with a higher risk than typical rental arrangements. The possibility of theft, vandalism, and injury increases with a revolving door of guests. Take, for example, the case of a Toronto Airbnb host who came home to a ransacked apartment with $21,000 worth of valuables missing. The host was under the mistaken impression that a family would be renting his home while he was away. Unlike a conventional hotel, he did not ask for identification or a security deposit (nor meet his guest in person) prior to providing the code to a lockbox that contained the key to his apartment.
Risk is also present in the dearth of regulation within the sharing economy. According to the Square One survey, 21% of short-term rentals in Ontario are considered “illegal,” meaning they do not conform with municipal bylaws such as zoning restrictions, unit size restrictions, and inspection and licensing compliance (this number is likely higher given the reluctance on the part of survey respondents to disclose that they are operating illegal units). For the most part, behaviour in the collective commons is governed by a user’s peers as opposed to any formal public regulation. For example, if an Airbnb guest misbehaves, the host can issue a poor rating, discouraging other hosts from renting to that guest. That said, from a public safety and risk mitigation perspective, it is questionable whether relying on public shaming as a form of regulation is adequate.
Airbnb now offers its own coverage through Host Protection Insurance. Every booking comes with $1 million USD in liability coverage for third party claims for bodily injury and property damage. The coverage is automatic and free of charge. Under this policy, Airbnb is the policyholder while hosts are covered as insured parties. Airbnb also offers the Host Guarantee which provides coverage for certain property losses caused by a guest, excluding coverage for cash, security deposits or pets. Of course, these programs do not act as stand-ins or replacements for homeowners or renters insurance.
It is not surprising that conventional home insurance does not cover short-term rentals. Traditional homeowner policies only provide coverage when the owner is occupying the home. Some policies prohibit a homeowner from renting their home to someone else. Typically, renting one’s home is considered a business activity, triggering the need for a commercial policy, thereby increasing premiums and a reluctance on the part of homeowners to secure appropriate coverage. A handful of new “insurtech” and peer-to-peer insurance companies have responded to this shift in the rental market by tailoring homeowner policies to short-term hosts. This product and service innovation will likely continue among all insurance companies as these new markets emerge.
In the meantime, if you’re considering renting out your home, there are several things to keep in mind. First and foremost, contact your insurer to discuss your plans and secure the appropriate coverage. This will help to avoid being underinsured or having your policy void altogether. Ensure that you’re taking steps to properly identify and scrutinise potential renters, and always require a security deposit.