
The Insurance Market Mystifies an Airbnb Host - johnny99
http://www.nytimes.com/2014/12/20/your-money/the-insurance-market-mystifies-an-airbnb-host.html?_r=0
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tptacek
_Ms. Pfeffer eventually found a solution, but it wasn’t easy. And this is
mostly the fault of the insurance industry, which doesn’t always want to
answer questions about this sort of activity, whose agents aren’t always as
knowledgeable as they should be and whose own policy language can be
incredibly confusing._

This isn't the "fault" of the insurance industry. Homeowners insurance
policies mitigate the standard risks of residences. They don't cover hotels,
which have _wildly_ different risks due in part to the radically different
incentives and risk tolerances of hotel room occupants.

This whole article is premised on the idea that it shouldn't be hard to figure
out which homeowner's policies can be abused to cover ad-hoc hotel businesses.
I'm alarmed that there are policies that _do_ work that way; if I were a
Liberty Mutual customer, I'd be painfully aware that my premiums took into
account the idea that I might rent out my own house that way.

I sort of adore Airbnb and have never had a bad experience with it, but
everyone in the Airbnb ecosystem appears to be relying on denial in one way or
another.

~~~
RockyMcNuts
1) Insurance companies mitigate a lot of risks that are a lot rarer. It's
pretty common to do a short-term rental, rent out a room to a roommate. Doing
the occasional Airbnb rental is essentially the same thing.

2) Insurance companies should have a straightforward answer to a reasonable
question. Not covered, covered if rental income < $15,000 , needs a rider,
etc. Of course, at some point you're operating a B&B and you need to get
commercial insurance, and they should be able to tell you at what point it
would be considered a business.

3) If Airbnb's secondary coverage is predicated on a primary coverage that is
not standard or impossible to get, then yeah, it's denial. If it's predicated
on a normal homeowner's liability policy with a standard rider, seems pretty
reasonable. Maybe I'm missing something.

4) If the liability is hard to predict now that Airbnb is as big as it is,
there probably haven't been that many claims.

~~~
anigbrowl
The commonality of a short-term rental isn't the issue. What matters is that
the liability changes massively as soon as you charge someone money to come
into your home, rather than inviting them as your guest.

~~~
RockyMcNuts
My takeaway from the article is

\- State Farm is a mass-market company - no Airbnb

\- Chubb is an upmarket company - $15k revenue limit

\- Liberty Mutual is a mass-market company - 'occasional' rental, cannot be
'engaged in business' \- rather vague

Problem is the vagueness, and the Chubb and Liberty Mutual agents contradict
the firm's spokespeople, which is kind of their fault. They should get it
together when it comes to Airbnb. Pretty common, easily insurable use case
with a known claim history.

Of course, if you want to run a hotel business, you need a commercial policy,
and many if not the vast majority of Airbnb-ers skirt the rules.

So yeah, when you do that, there is a massive change in liability, and yeah,
if you don't get the right insurance there's denial.

If somebody trips and falls and sues you, or burns down your place, and the
insurance company says you were running a hotel business and denies your
homeowner's claim, you're screwed. I don't know what Airbnb's umbrella does
for you then.

------
_delirium
This is not too surprising for people who are in the short-term / vacation
rental market. If you regularly rent out your property short-term (when I
lived in Santa Cruz, CA, a lot of people did), whether it's as a B&B, whole-
property rental, boarding house, or anything similar, you typically need a
completely different kind of insurance from regular homeowner's insurance.
They exist, but are more expensive (unsurprisingly, since the risk of payout
on the insurer's part is also higher).

The tricky thing with AirBnB, I think, is that a lot of people are in that
market, but don't view themselves as "really" being in it. Even some people
who are for all practical purposes running a full-time B&B don't see
themselves as doing so, so they don't know about some of the standard stuff
you have to do to safely operate in such a market.

~~~
curiously
i wonder if AirBnB could suddenly find themselves in the lucrative insurance
business? Or maybe this aspect would be a big turn off point for renters.

~~~
greenyoda
Not very likely. Insurance is a highly regulated business (at the state level,
in the U.S.), and insurers need to satisfy regulators that they have the
capital reserves to cover their customers' claims. It's not something that a
small company can easily do.

~~~
_delirium
I could see AirBnB reselling someone else's insurance perhaps. I agree it's
less likely they'd run the actual insurance business themselves. Besides the
capital and compliance parts, property insurance is also fairly labor-
intensive, requiring a large organization to do it on a national basis (let
alone international). Claims investigation is pretty fact-specific, requiring
you to have staff on the ground more or less everywhere you sell insurance,
who are able to interface with police departments, inspect properties,
investigate fraud, litigate claims, etc. (And if you skimp on the claims
investigation bit, you'll get eaten alive by scammers with false insurance
claims.)

~~~
username223
> I could see AirBnB reselling someone else's insurance perhaps.

If AirBnB and Uber want to "go legit," this would be a good way to do it:
bargain with insurers for a discounted group rate, then require their
"contractors" (i.e. employees) to be properly insured. They could even do the
research on homeowner's insurance themselves, and make it nearly painless for
employees to make sure they're obeying the law.

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logicallee
I bet the reason is that _most_ airbnb hosts haven't been checking or asking
for riders, since they're violating local ordinances anyway, and riding in a
rather grey area. The risk is small, so most have just been eating it. So who
_has_ been checking?

People who have had repeated problems that have some specific ongoing source
or reason due to something about their property or the way they conduct
themselves. If so, these people are certainly about to file a claim. This
means this is a terribly toxic pool of people, i.e. not the whole airbnb
community. _if_ this is true, airbnb has a really easy solution: just offer
its entire customer base to an insurer, which solves the problem that most of
its customers haven't been signing up for special coverage.

This is actually close to what it's doing, though with the difference is that
it sounds like it's being white-labelled. Maybe there is no national insurance
company that can accept every airbnb in every market, which is why airbnb
doesn't use the name of one for its own program.

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patio11
It seems like an enterprising insurance agent who understood this issue could
do _brisk_ business in writing new insurance policies by papering the town
with postcards saying some variant of "Don't want your homeowner's insurance
policy cancelled for using Airbnb? Give us a call -- we'll introduce you to a
more appropriate policy."

If you wanted to pitch a company on something you could build for them, the
above activity suggests a fairly straightforward one-day consulting engagement
which you could credibly promise as being worth thousands of dollars.

~~~
Danieru
I have less confidence that renter understand their needs. Getting "AirBnb"
marketed insurance would be an uphill battle of mind share. Too much of the
AirBnb competitive advantage is based on avoiding legitimate business
expenses, like hotel taxes and liabilities.

It would require a high profile case of an uninsured renter losing big on a
civil lawsuit to change renter's approach. Too many think they are not
businesses. They do not understand they've left the warm and safe world of
coddled house owners and entered the cold and uncertain land of liability and
responsibility. This is no longer the land of mortgage subsidies, mortgage
issuance.

These renters are often pathological customers for their suppliers. People
who've rented an apartment and are sub-leasing to strangers. Utility customers
not paying commercial rates for garbage collection. They are re-selling
residential internet against TOS. Just about ever form of price discrimination
businesses have setup to favour home owners is getting abused in Airbnb
hotels.

Airbnb renters are going to need convincing before they increase their cost
basis.

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jqm
So insurance companies don't like it when someone carries out commercial
activities (with increased risk) on a residential policy...

Makes sense. To be fair, (in theory at least), the increased risk is spread
among the remaining residential insurance payers who are not engaging in
commercial activity. So once again, (as with taxation), borderline legal, er,
I mean "innovative sharing" activity is imposing a financial cost on the rest
of society.

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datashovel
This pattern seems to be quite common today:

Entrenched interests refuse to budge on issues related to evolving markets.
Smaller, more nimble, more open-minded companies see opportunity and take
market share. Eventually entrenched interests either lose market share (no
longer as entrenched as they once were) or they catch up.

------
mrgriscom
My insurer (Amica) was very easy to work with on this matter.

~~~
firefoxNX11
Easy? How?

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pbreit
Home and car sharing are with us now so the insurance companies will need to
adapt or get steamrolled.

~~~
anigbrowl
Get steamrolled by who? Insurers are in the business of mitigating risk by
paying out on unforeseeable losses. There are more than enough people who
purchase private non-commercial insurance for them to make a profit, why
should they or the insurance companies' shareholders subsidize the people who
want to engage in commercial activity but don't want to pay the costs of doing
things to commercial standards? You don't get isnurance because of the low
risk of bad things happening, you get it because of the potential liabilites
on the rare occasions when they do.

Say someone is at an AirBnB, falls down the stairs, breaks his/her neck, and
is paralyzed. AirBnB's million dollars of coverage may not be enough to meet
the medical costs of such an injury, to say nothing of other damages. So the
injured party's lawyer and/or medical insurers will go after the host's
homeowner's insurance or else after the host's property or income stream.

Hotels aren't expensive because all hotel owners are greedy people intent on
bleeding their customers dry (although such owners exist); to a large extent
they reflect the significant costs of doing business.

~~~
pbreit
By insurers who accommodate these customers, who are already a large and
growing set.

~~~
Marazan
There are insurers who accommodate these customers - lots of them: who do you
think is insuring hotels and regular Bed and Breakfasts? The problem, as ever,
is people wanting the benefit of commercial use insurance without the pain of
paying commercial use insurance rates.

