Public Policy Analysis & Opinion
NAIC advises public to consult producers on home-sharing arrangements
These times make me feel like the proverbial “old man shaking his fist at a cloud.” A stone-blizzard of stupid has engulfed the world! I know what regular readers think I am about to rant about, but “he” has nothing to do with it. My concerns deal with something more insidious, creepy, and corrupt. I mean changes to American travel.
The National Association of Insurance Commissioners (NAIC), the moribund Gray Lady of Insurance Regulation, published a white paper on something that cool people seem to call “home sharing.” Because the NAIC is usually the last entity to recognize any change in the landscape, I now live in fear that large numbers of people engage in this activity.
The NAIC defines the commercial exchange in question. “Home-sharing companies like Airbnb and HomeAway offer consumers the ability to rent out an individual’s personal residence or vacation home. Stays can be booked for a room or the entire residence.”
Now I am very much aware that the rental of rooms or homes is nothing new. We used to call them rooming houses or vacation rentals. As the NAIC white paper observes, “Although the concept of providing room and board in one’s home may not be new, the frequency with which consumers are hosting and booking stays is increasing.”
These commercial activities require insurance to transfer the risk of financial loss. The home-sharing sector likes to avoid that kind of responsible purchase.
I will admit my bias against the entire “homey” principles that lurk around the home-sharing ritual. I was never even a fan of the bed and breakfast craze. The few times I was talked into staying at a B&B, I did not enjoy it from the start.
First of all, and readers might find this difficult to believe, after suffering the stress and indignities of air or automobile travel, I am usually not in a good mood. Yes, I get cranky. So when I pull up in front of a B&B and some overly perky host greets me with a false familiarity as if I come from a branch of genetically or legally connected relatives, I do not always react well. Give me a few minutes to acclimatize!
Second, some host always wants to share the history of the room with the new boarder. “Oh, we just love this room! It belonged to our boys, and they still use it when they come back home!” About that time the host explains that they never had the heart to remove the boys’ action figure collection from the chamber I am renting—“but that should just make you feel like part of the family.” So my stay is augmented by the uneasy feeling of being followed by 500 sets of eyes every moment that I am in the room. It gets worse, but I will leave it at that.
The standard homeowners policies were designed around a static use of ownership of property. Home sharing is anything but static.
In short, I know that every hotel room I have ever stayed in has a history that I do not want to know. That is why a basic principle of any reputable hotel/motel management program is that the hospitality professional should encourage the customer’s willing suspension of disbelief so that the latter can believe that he or she is the first and only person to stay in that room. Sure, that charade verges on fraud, but in some transactions, the truth should not be in us!
Because the issue of home sharing is sufficiently well established that the activity has even found its way onto the NAIC agenda, I can assume that this is just another example of the failure of western civilization.
The white paper establishes that the home-sharing market drips with the risk of financial loss:
Home sharing has implications for all parties to the transaction: 1) the host, who may own or rent the listed property; 2) the host’s landlord, if the listed property is rented by the host; 3) the guest, who books a stay through the home-sharing site; and 4) the home-sharing company, which connects hosts with guests. Guests and hosts could incur costs if things go awry. Accidents can happen anytime, anywhere. Even if hosts take preventive measures, someone could trip
over a rug or slip on a wet floor,
In some cases, standard homeowners policies will extend to cover the risk of loss associated with these transactions. As the NAIC observes, it is difficult to make a general statement describing the existence of coverage or lack of coverage. The standard homeowners policies were designed around a static use of ownership of property. Home sharing is anything but static.
Lacking uniform definitions of policy terms, the white paper establishes an “occasional use” rule of thumb when considering whether a homeowners policy might apply to risks related to home sharing. In other words, is the risk persistent?
In addition, the NAIC calls attention
to the Insurance Services Office’s (ISO)attempts to establish uniform endorsements and exclusions. “[The ISO] has developed endorsements for the standard homeowners program to address the exposures relative to home sharing. Policy language has been added to reinforce existing exclusions in certain
situations. Under this exclusion, losses due to theft, vandalism, liability
coverage, and personal injury related to [home sharing] activities would be excluded.”
The white paper explains that exclusions do not apply to the “property coverage unrelated to home sharing, such as coverage for damage from fire, windstorm or hail.” In addition, ISO “would restore coverage excluded, broaden coverage to other structures on the property, enhance theft coverage, and provide coverage for loss of rental income.”
From the consumer perspective, ISO recommends “property and liability coverage for the insured while traveling and using home-sharing services as a guest.” Because some home-sharing agreements contain provisions designed to shift risk to the guest, it is important for individuals to understand their insurance coverage before staying at a home-sharing facility.
According to the NAIC white paper, “Home-sharing guests also should read their own homeowners or renter’s insurance policy, to understand if their policy would cover them if they were liable for damages to the rental property or the host’s personal items. Guests may have some coverage under their own homeowners, renter’s, or personal liability insurance policy if they cause accidental damage to a host’s property.”
Insureds who own units in a condominium will want to ascertain whether their unit policy contains a business use exclusion before entering into any sharing agreements. In addition, even if the policy does not exclude losses from business use, the unit owner will want to review any homeowners association-sponsored insurance for common areas.
Clients who purchase dwelling policies also might need to compare how their policies interact with homeowners association plans. In addition, the white paper reminds dwelling policyholders and producers that such products might require personal liability supplements before use in a home-sharing arrangement. “Unlike a typical homeowners policy, personal liability and medical payments coverage is often excluded under a dwelling policy.”
The renter who seeks to market a unit might be entering a world of pain. As the NAIC white paper notes, any sublease might violate the renter’s contract. If rental agreements allow for home-sharing arrangements, a renters policy carries many of the exemptions found in a homeowners policy. The white paper highlights several common features of renters policies that may come into play in home-sharing arrangements, such as coverage for loss of personal property or “exclusions for damage or theft of personal items in an apartment rented to a third party.”
The white paper strongly recommends that anyone who is considering entering a home-sharing arrangement consult an independent agent or broker. In particular, the white paper suggests property owners explore the purchase of a landlord policy, also known as landlord property insurance or rental coverage for landlords.
“A landlord insurance policy will cover the insured’s home, structures on the property, property contents (such as appliances and furniture), lost rental income due to building damage, legal fees, and liability claims. Landlord policies may include broader coverage than a standard homeowners policy and would, therefore, cost more,” explains the white paper.
The NAIC also recognizes that the major home-sharing exchanges offer limited coverage for both host and traveler. The white paper reviews coverage offered by two of the largest home-sharing exchanges and documents numerous holes in those coverage packages. For example, one plan “names the host as the insured, and provides liability coverage for third-party bodily injury or property damage.” Nevertheless, the host remains exposed to financial loss through several common areas of risk; e.g., coverage does not include medical expense or personal liability.
The NAIC recommends that consumers contact their agent or broker before entering into a home-sharing agreement. Producers also may want to initiate a conversation with clients who own properties that may be desirable for home-sharing or clients who travel frequently.
The entire white paper is available to the public on the NAIC website (www.naic.org).
Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Cos. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.