Consumer Watch: Profiting from Airbnb: Is it really worth the risk?
As one of the world’s largest marketplaces for places to stay and things to do, Airbnb offers stays in more than seven million sites and 40000 activities. More than half a billion people have used the app, in more than 190 regions. It’s helped local entrepreneurs monetise spaces and driven tourism to communities.
Not all happy camping
Appealing as the concept might be, it’s also been mired in controversy: In Cape Town, it has sharply driven up property prices and put pressure on a tight market.
It has transformed quiet neighbourhoods into revolving hotel districts and forced major cities to clamp down on short-term rentals.
After Halloween, the company was forced to redouble its efforts against stopping unauthorised “party house” bookings, in the wake of a shooting at a rental home in California. Five people died during the incident. Airbnb reportedly plans to verify every listing on its platform by the end of next year through a mixture of company and community monitoring.
Most recently, reports have outlined how easy it is to exploit the company’s rules in order to scam users through phony listings, fake reviews, and even intimidation.
While most stays are without incident, there are instances of houses being wrecked by wild parties. In Melbourne, 70 guests trashed a beachfront property causing damages amounting to R1.5 million. In another case, a guest put a sofa, a single bed and chest of drawers in the shallow end of a swimming pool while another guest recreated a beach inside the owner’s property.
Then there was the £26000 (R493000) public liability claim brought about in Wales when a guest slipped on decking steps. There was a sign on the back door, warning the decking could be slippery when wet, but the guest still claimed for personal injuries, time off work and legal fees.
Christelle Colman, the managing director of Elite Risk Acceptances, warns that being a host isn’t without risk: “You just never know what you’re letting yourself in for when renting to virtual strangers, and a big risk for homeowners is that their property will be damaged.”
And that risk must be managed. Colman says when Airbnb came onto the market, insurers weren’t geared for the consequences. “It wasn’t an issue in the insurance market at first and even today, most insurance companies will still not give you cover if your property is damaged during a short-term rental.
“We do understand though that clients rent out properties on weekends, or they buy specifically for short-term rentals. When you rent out your property as a business, you need to look at specific commercial policies. Those policies pick up on the risk, when your personal insurance won’t.”
Colman says hosts are most exposed for personal liability, which is why they should get that in place.
Airbnb extends $1m (R14.83m) cover. Its host protection insurance programme provides primary liability coverage for up to $1m per occurrence, if there’s a third-party claim of bodily injury or property damage related to an Airbnb stay, subject to certain conditions, limitations and exclusions.
The programme doesn’t cover cash and securities, collectibles, rare artwork, jewellery, pets or personal liability, which is why it recommends that hosts secure or remove valuables when renting out properties. It also doesn’t cover loss or damage to property due to wear and tear.
The programme doesn’t replace your homeowners or commercial insurance, which is why Airbnb suggests that hosts review and understand the terms of their insurance policies and what it covers and doesn’t cover.
It says: “Not all insurance will cover damage or loss to property caused by a guest renting your space. Filing a host guarantee request doesn’t preclude a guest from financial responsibility for the damages claimed if Airbnb determines a guest was at fault.”
Colman says: “If there’s a defect on your property, even if you don’t know about it, your biggest exposure is around personal injury.”
In one case, a guest became paralysed after falling from a height. The lodge where the American tourist was staying had been undergoing renovations, but the balustrade wasn’t secured properly and the guest sued for millions of dollars.
If you want to make money off your property, you really need to familiarise yourself with your insurance policy and speak to your broker. It’s always advisable, she says - and wise - to inform your insurer that you are renting out your property, to see if they will cover it.
Colman says: “Many companies exclude short-term rentals and therefore do not cover your Airbnb rental.
“The property owner’s liability risks incurred by paying guests will be covered under most local insurers’ policies only if they are purely a personal insurance risk. The liability policy therefore specifically excludes liability incurred by the client’s business.
“As such, if the Airbnb is a residential property which is used to supplement the client’s income, the liability will be covered. However, if the client is a property owner, whose sole business is the owning and letting out of properties, it is considered a commercial risk and the personal liability policy will not provide cover.”
She says that if you are renting out part of your home regularly to generate income, your insurer might view that as a business activity, so you need to take a commercial insurance policy to ensure you are covered against any damage.
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.
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