The Insurance Market Mystifies an Airbnb Host

<i>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.</i><p>This isn&#x27;t the &quot;fault&quot; of the insurance industry. Homeowners insurance policies mitigate the standard risks of residences. They don&#x27;t cover hotels, which have <i>wildly</i> different risks due in part to the radically different incentives and risk tolerances of hotel room occupants.<p>This whole article is premised on the idea that it shouldn&#x27;t be hard to figure out which homeowner&#x27;s policies can be abused to cover ad-hoc hotel businesses. I&#x27;m alarmed that there are policies that <i>do</i> work that way; if I were a Liberty Mutual customer, I&#x27;d be painfully aware that my premiums took into account the idea that I might rent out my own house that way.<p>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.

This is not too surprising for people who are in the short-term &#x2F; 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&#x27;s as a B&amp;B, whole-property rental, boarding house, or anything similar, you typically need a completely different kind of insurance from regular homeowner&#x27;s insurance. They exist, but are more expensive (unsurprisingly, since the risk of payout on the insurer&#x27;s part is also higher).<p>The tricky thing with AirBnB, I think, is that a lot of people are in that market, but don&#x27;t view themselves as &quot;really&quot; being in it. Even some people who are for all practical purposes running a full-time B&amp;B don&#x27;t see themselves as doing so, so they don&#x27;t know about some of the standard stuff you have to do to safely operate in such a market.

I bet the reason is that <i>most</i> airbnb hosts haven&#x27;t been checking or asking for riders, since they&#x27;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 <i>has</i> been checking?<p>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. <i>if</i> 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&#x27;t been signing up for special coverage.<p>This is actually close to what it&#x27;s doing, though with the difference is that it sounds like it&#x27;s being white-labelled. Maybe there is no national insurance company that can accept every airbnb in every market, which is why airbnb doesn&#x27;t use the name of one for its own program.

It seems like an enterprising insurance agent who understood this issue could do <i>brisk</i> business in writing new insurance policies by papering the town with postcards saying some variant of &quot;Don&#x27;t want your homeowner&#x27;s insurance policy cancelled for using Airbnb? Give us a call -- we&#x27;ll introduce you to a more appropriate policy.&quot;<p>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.

So insurance companies don&#x27;t like it when someone carries out commercial activities (with increased risk) on a residential policy...<p>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 &quot;innovative sharing&quot; activity is imposing a financial cost on the rest of society.

This pattern seems to be quite common today:<p>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.

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

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