This latest Opinion piece is by Andrew Bate, co-founder and CEO of Safely, the leading insurtech and guest screening solution for the vacation and short-term rental market. Since its launch in 2015 over $50 billion of homeowner liability has been covered.
The short-term rental sector has enjoyed significant growth over the past year, dominating the travel recovery scene. Traveler demand for privacy, safety and the space to combine both work and play have seen it become the accommodation of choice. And the summer 2021 bookings can attest to that (Airbnb reports that Q3 was its strongest quarter ever). With the workation trend set to grow, I believe demand will hold strong well into 2022 and beyond.
It’s no wonder then that there’s growing interest from homeowners wanting to capitalize on the lucrative short-term rental market opportunity. And we’re not just talking about second homeowners here. Since the pandemic, there’s been a significant shift in mindset towards renting out homes in general.
Realtor.com recently reported that owners are more open to leveraging their home assets as a potential source of income. And then there’s the fact that the flexible living trend has seen more homeowners entering the space themselves, as they too opt to leave their own homes for extended work and leisure stays elsewhere.
With high demand, and a shortage of inventory, entering the short-term rental space is an attractive prospect for homeowners looking to supplement their income. But it’s not without risk. By entering the short-term rental market, you effectively move from being a homeowner to a business owner. And this has implications for insurance, both in terms of personal liability and asset protection. At Safely we understand both the opportunity and risk involved in opening up your home to internet strangers. Here’s what you need to consider in order to be properly protected:
Tailored short-term rental insurance
By renting out your home, you’re now a property manager and this means that you’re operating under a different category of risk, with greater insurance needs. A homeowner policy covers your home in general – when you’re there, when you have friends staying for free, and when the house is empty. But the coverage most likely stops as soon as you start to use the home for other purposes, such as using the property as a business by renting it out. This is where a tailored short-term rental insurance policy comes in.
In many ways, a home rental experience mirrors real life. No-one likes to think of the worst case scenario, but accidents happen, things occasionally go wrong, and every now and then there’s a ‘bad’ person to contend with. You may be a fantastic homeowner, but there are elements of property management that are beyond your control. Someone slips on a wet path, there’s an accident in the swimming pool, a fire breaks out.
As the owner, you’re liable for any damage done to, or injury sustained at, your property. This means that without the proper coverage in place you’re putting your entire property (i.e. your home) at risk. This home may be a part of your retirement plan, your children’s inheritance. It’s simply too much to gamble. A tailored short-term rental insurance policy will ensure you’re fully protected against the new level of risk associated with opening up your home to paying guests.
Many homeowners, and indeed insurance agents, new to the short-term rental space are still getting to grips with the demands of this specialist category of home protection. The insurance industry has been slow to catch on to the flexible living trend and the ensuing short-term rental movement. The insurance solutions are out there, but there’s still more awareness raising to be done.
Top considerations for a short-term rental insurance policy
Navigating the complex world of specialist insurance is no mean feat. Owner managers will need a robust damage liability product for home, contents and bodily injury. Here’s my checklist of top considerations when choosing a short-term rental insurance policy:
● Category coverage: Firstly, check that the policy covers this category of Airbnb type rental.
● Liability: Consider what level of liability you require. Everyone’s situation is different. How much is your asset worth? It’s important to make sure your liability limit is high enough to protect your assets in full. I suggest $1,000,000 of commercial insurance that covers damage to the home’s structure, its contents, and bodily injury (covering accidents and non-accidents and eliminating damage deposit administration).
● Deductible fee: Most annual policies have a $1,000 deductible fee, meaning you’re left to cover the regular incidental damages below this figure (think scratched floors, stained sofas, broken coffee table). The policy will cover the big costs, but what about these smaller costs? They can soon mount up. Be aware of this and decide whether it’s worth reducing your deductible (albeit at a higher premium).
● Rental frequency: Depending on how often the property will be rented out, it is worth investigating the merits of a ‘per rental’ policy vs an annual one.
● Legitimate insurance: This may seem obvious, but do make sure that you have a legitimate insurance policy in place rather than a guarantee. Insurance is regulated. Guarantees aren’t. Be careful and always check the fine print (paying particular attention to the exclusions).
The role of tech in insurance
We’ve seen great innovation in recent years in tech developments to support the integration of insurance with operations. Tech enhances the insurance solution, driving efficiencies, streamlining processes and ensuring quality service in the following ways:
● Connectivity with the booking flow: Insurance works best when embedded into the reservation process. Tech integration ensures bookings are automatically insured, adding a fee to the reservation flow – providing a seamless booking experience for the guest, and coverage for the homeowner. This also addresses the question of frequency – with the ability to turn this policy feature on only when you’re renting out to guests.
● Claims payments: If something goes wrong, a quick recovery is vital. And tech can make this happen. A digitized claims process creates efficiencies, and also safeguards against fraudulent claims by noting exceptions and keywords through AI machine learning. At Safely, we pay 70% of claims by the 2nd business day. This is only possible through our application technology.
● Effective guest screening: Good guest screening relies on collecting the right data and understanding what it means. AI and machine learning have brought huge leaps forward in terms of the industry’s understanding of unique risk – how risky is one type of reservation versus another? The technology of data science allows us to predict outcomes, which allows us to take preventative measures. Insurance premiums go down for the majority as a result, and ‘bad’ stays don’t happen. According to our Safely data, 14% of guests are responsible for 70% of the bad stays. We used this insight to focus on high risk guests in order to prevent problems before they arise. Tech has given us a deeper understanding of risk than ever before.
A new type of risk and the market opportunity
The flexible short-term rental market has opened up huge income opportunities for homeowners across the world. And by doing so, it’s created a whole new market of risk. This fast-growing sector is unique in that it is predominantly owned by people rather than big business. The repercussions of failing to have specialist short-term rental insurance in place (denied claims, liability, putting family assets at risk) just aren’t worth the risk.
But, as it stands, this is a massively undercovered sector. Having a tailored short-term rental insurance policy in place is vital for homeowners looking to enter the lucrative flexible rental market. It will ensure a happy, safe and profitable experience for owner and guest alike. The market opportunity is there for the taking.