Strict “anti-party” measures were recently rolled out by Airbnb in an effort to reduce unauthorized parties at vacation rental homes during the summer holidays. The efforts include restrictions on one- and two-night reservations and having guests affirm that they understand the party ban and could face legal action if they do not comply, CNN reported.
A number of parties at short-term rental homes have turned disastrous in recent months, including an April incident at an Airbnb-rented home in Pittsburgh where 90 shots were fired during a large party, killing two teens and injuring several others. In May, a 17-year-old was shot to death during “chaos” that ensued after an unauthorized party at an Airbnb property near Marietta, Georgia, was stopped by the homeowner. In addition, a family in Seattle is speaking out after Airbnb guests made drugs at their property and caused significant damage.
With parties, you do not necessarily know who is going to show up. I think everybody sees these incidents happening and they always think that it will never happen to them, but you just never know.
“It is really scary,” said Catherine Mekemson, Senior Underwriter, Personal Insurance, Burns & Wilcox, San Diego, California. “With parties, you do not necessarily know who is going to show up. I think everybody sees these incidents happening and they always think that it will never happen to them, but you just never know.”
Guest injuries and property damage are among the greatest risks for these homeowners, who need to ensure that their Homeowners Insurance policy has the necessary endorsement for short-term rental use, said Lisa Stout, Director, Personal Insurance, Burns & Wilcox, Dallas/Ft. Worth, Texas.
“If they do not have proper insurance coverage, they are going to have to absorb the cost of any damages or liability lawsuits themselves,” she said. “Even if they only rent out the home once or twice a year, they need to make sure that their insurance carrier is aware of it.”
More homeowners allowing longer stays, some renting out primary residence
A boom in short-term rentals is being experienced in many communities in the U.S. and Canada, causing rifts in some areas as municipalities look to limit the number of Airbnb and other short-term rental properties that are allowed. Goderich, Ontario, does not allow short-term home rentals, for example, while the municipality of Tiny, Ontario, is investigating a permit system to help restrict rentals, the Globe and Mail reported on June 5. In the U.S., multiple cities are considering or have enacted regulations to limit short-term rentals, Business Insider reported in May.
More homeowners are hosting longer-term stays at their Airbnb properties, as well, according to a February CNBC report. Attributed in part to more flexible work arrangements due to COVID-19, the trend has also seen an increase in Airbnb’s average rates as renters seek out larger homes for their families.
If one of their guests or the individual who rented it out gets hurt, that would open them up for being liable because it happened on their property.
“Individuals are also starting to do it with their primary homes,” Stout said. “Homeowners who live in college towns like Austin, Texas, where they have several big football games a year, will rent out their homes for a week during those times while they go on vacation.”
Despite the supplemental income, the endeavor comes with a wide range of risks — including the potential for an uninsured loss because the property owner’s Homeowners Insurance carrier was not aware of the rental use. Most homeowners offering up a primary or secondary residence for short-term rental through Airbnb or another service will need a “residence rented to other” endorsement on their Homeowners Insurance, Stout explained. This can cover property damage and liability claims resulting from the rental use.
“If one of their guests or the individual who rented it out gets hurt, that would open them up for being liable because it happened on their property,” she said. “With everybody being so litigious now, regardless of fault, somebody is likely going to get sued.”
Other covered expenses on the policy can include theft and burglary, and damage from water or fire. Certain high-value items may need their own Personal Articles Floater. While investors with multiple short-term rental homes may be aware of the need for a Homeowners Insurance endorsement, owners with one or two properties may not fully realize the risk, Mekemson said.
A lot of homeowners only carry $300,000 or $500,000, but if they can get $1 million or more, that can provide additional protection for themselves.
“I think many individuals do not even think about it,” she said. “They are looking to rent out a home for a few days and a liability risk is probably the furthest thing from their mind unless they work in insurance. Things can happen, though, and unfortunately the stories keep getting worse.”
These homeowners may also want to consider Excess Liability Insurance, which can provide liability limits beyond what the Homeowners Insurance policy can offer, Stout added. “The liability limit is important,” she said. “A lot of homeowners only carry $300,000 or $500,000, but if they can get $1 million or more, that can provide additional protection for themselves.”
Hourly pool-rental trend brings additional potential liability
Pool-only rentals continue to grow in popularity, presenting unique risks to homeowners. The app, Swimply, which the Wall Street Journal called an “Airbnb for pools” in a 2021 report, allows homeowners to rent out their backyard pool to guests for an hourly rate. In Atlanta, Georgia, a homeowner recently told CBS 46 News that renting out his family’s backyard pool helps them pay their mortgage.
“The liability exposure that you are opening yourself up to when you are doing something like that is severe,” said Stout, who said she was “shocked” when she heard about the trend and advised that Homeowners could run into coverage problems and jeopardize their future insurability if they are not careful and informed.
Whether it is a vacation rental home that has a pool or a pool-only rental, pools are associated with significant risk, Mekemson said. The Centers for Disease Control and Prevention reports an average of 11 drowning deaths each day in the U.S., and there are hundreds of water-related fatalities in Canada each year, according to the Canadian Red Cross. In March, a 3-year-old child nearly drowned after falling into a swimming pool at a vacation rental home on Anna Maria Island, The Islander reported.
If insurance is not in place, [a loss] could be an absolute nightmare; it could ruin your life.
Homeowners should consider these risks and discuss the issue with their Homeowners Insurance broker before allowing their pool to be rented out, Mekemson said.
“Homeowners often think their Homeowners Insurance will cover absolutely everything. You’ll want to sit down with your broker to see what that policy really covers,” she said. “There are usually exclusions, and you want to make sure that you are getting the right policy for the specific occupancy.”
If something goes wrong at a pool-only rental or a short-term rental home, “it could be catastrophic,” Mekemson said. “If insurance is not in place, it could be an absolute nightmare; it could ruin your life.”
Requirements on renter age, length of stay can help homeowners reduce risks
Airbnb’s latest crackdown on unauthorized parties is the right move, Mekemson said, especially because it was successful the last time the restrictions were implemented. “I think it points out the concerns more urgently to the renters, as well. A lot of times, renters are not necessarily reading the fine print.”
There are steps homeowners can take on their own to help reduce the risk of property damage or injuries while hosting guests. When seeking a Homeowners Insurance endorsement for short-term rentals, owners will likely be asked by their insurance carrier to verify how many renters they will allow at the home at a time and the age of the renters.
“On our policies, we have a questionnaire about renting to anyone under the age of 25,” Stout said. “With some of our carriers, if they are under the age of 25, we cannot even write a policy for them if they are going to do short-term rentals.”
Pre-screening tenants and having agreements in writing are other important steps, she added. Homeowners should also consider alarm systems, including a central station fire and burglary alarm if possible, and cameras. Some insurance carriers may require that owners only allow stays of at least two nights, Mekemson said.
“I recommend just really vetting the renter if you can. Airbnb uses the review system, and I would be more hesitant of those who have not rented as much or have lower scores,” she said, adding that expectations should be “made clear to the renter beforehand.”
With the short-term rental trend likely to continue, Stout said, homeowners should be diligent about mitigating their risks as much as they can. “I foresee this trend continuing,” she said. “Depending on the quality of the home, a homeowner could rent it out for several hundred dollars per night with a two-night minimum. It seems like now more than ever, individuals are looking at different ways to make extra income.”