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Home Sharing Hosts and the Loss of Income

Author: Chris Boggs

Spencer Houldin, IIABA chairman, recently sat for a CNBC interview focused on insurance protection for the potential loss of income suffered by Airbnb and other home-sharing hosts following a power outage. The impetus for this interview was the catastrophe on North Carolina's Outer Banks where PCL construction dropped a steel casing on a group of power lines cutting power to a large section of the Outer Banks forcing tourists and vacationers to leave.

Unfortunately, I disconnected cable almost a year ago because I grew tired of paying for the five channels I actually watched, thus I did not see the interview. But I did conduct the interview in my mind. Here is how I envisioned it. (Yes, I'm weird.)

"With us today is Spencer Houlding, chairman of the Independent Insurance Agents and Brokers of America, or The Big 'I.' Thank you Mr. Houlding for taking time to be with us today."

"That's Houldin – no 'g.' My pleasure, whoever you are interviewing me."

Q. Mr. Houldin (with extreme emphasis on the lack of a "g"), considering what recently occurred on North Carolina's Outer Banks, with the contractor killing power to most of the area, how would an Airbnb-type operator recover his lost revenue?

A. In what we might call the "standard" insurance market, which means the insurance carrier is using forms promulgated (or written by) Insurance Services Office (ISO), there is, unfortunately, no way for an Airbnb or other home-sharing host to recover their lost income in a situation like the one that just occurred in North Carolina.

Q. Why is that?

A. ISO's standard homeowners' policy specifically excludes any loss or damage resulting from a power failure occurring off what is called the "residence premises" (which is basically the land on which the house sits). The damage occurred in the middle of the water.

For reference, the exclusion reads:

4. Power Failure

Power Failure means the failure of power or other utility service if the failure takes place off the "residence premises". But if the failure results in a loss, from a Peril Insured Against on the "residence premises", we will pay for the loss caused by that peril.)

Q. Is there any way for the homeowner to purchase this coverage?

A. Unfortunately, no; at least not in the standard ISO market. All the commonly used ISO homeowners' policies exclude losses caused by off-premises power failure; and there is no way to amend or endorse the policy to remove or alter the exclusion.

But if the house is damaged by what the industry refers to as a "covered cause of loss," the loss of income suffered by a home-sharing host may be covered. For instance, if the house was damaged by fire, there could be coverage for any income the owner lost because no one is staying in the house.

Q. I notice you key in on the terms "may" and "could;" why?

A. Well, whether there is coverage or not depends on how the insurance carrier has altered (what we call endorsed) the homeowners' policy. If the insurance carrier has not specifically addressed the home-sharing operation, there is nothing in the policy that excludes the loss of income. In fact, the policy specifically provides coverage for the loss of "fair rental value" if the house is made unfit to live in; or even just that part that is rented to others on a home-sharing basis, potentially.

However, many insurance carriers do specifically address home-sharing; generally, by excluding coverage for any loss (property and liability) by endorsing (attaching) a new exclusion, the Home-Sharing Host Activities Amendatory Endorsement, to the policy. In the most basic terms, the exclusionary endorsement adds the home-sharing operation to the definition of "business," then excludes the loss of rental income in addition to other losses that may arise from home-sharing.

But there is good news, in addition to and to combat these relatively new home-sharing exclusions, carriers also now have the opportunity to alter the policy by attaching an endorsement that specifically provides many coverages for home-sharing operations such as Airbnb – and this endorsement includes coverage for the loss of income. (But unfortunately, this endorsement does not alter the previously-mentioned power failure exclusion, so the loss is still excluded).

Q.  So, which endorsement is most likely to be attached?

A. Insurance carriers generally try to exclude unknown exposures; thus, they are more likely to attach the exclusionary endorsement when they are not sure if the insured is engaged in home-sharing. If the homeowner is involved in home-sharing, he should tell his agent (if the agent didn't ask) so that the necessary coverage can be obtained. One caution, even though there is an endorsement available to extend coverage, that does not mean the insurance carrier will simply attach it because the homeowner has a home-sharing operation.

Before agreeing to extend coverage, the insurance carrier will require specific information such as annual income from home-sharing; how many nights per year there are guests; and how much of the house is used (is it the entire house or just some percentage of the house), or is a structure detached from the main house being used. These are the kinds of questions the insurance carrier wants answered before they agree to provide coverage. The industry calls this, "underwriting information."

With the "underwriting information," the insurance carrier decides if they are willing to provide coverage and at what price.

If you are engaged in or are considering entering the home-sharing world, please discuss the operation with your independent insurance agent first. You don't want to jump into anything until you know the insurance ramifications.

Q. Doesn't Airbnb and other such operations provide some level of protection for those homeowners renting through their home-sharing network?

A. From what I can tell, yes. Airbnb, for example, offers "Host Protection Insurance" and "Host Guarantee" coverage. Airbnb's host insurance programs focus mostly on liability losses and damage to the host's property; but there does not appear to be any coverage for loss of income – so the homeowner is back to depending upon his own insurance policy. In fact, Airbnb's description of the "Host Guarantee" coverage specifically states, "The Host Guarantee is not insurance and should not be considered as a replacement or stand-in for homeowners or renters insurance."

Q. Thank you, Mr. Houldin, for this incredible information. There is a lot more to this insurance stuff than just price. I hope our viewers realize this. (OK, so I embellished this a bit in my mind.) Just to make sure our viewers didn't miss anything or misunderstand:

  • The unendorsed Homeowners' policy appears to give coverage for loss of income under the coverage grant found in the "Fair Rental Value" when part of or possibly the entire house is used in a home-sharing arrangement;
  • The Home-Sharing Host Activities Amendatory Endorsement removes coverage for insureds engaged in home-sharing activities (NOTE: There are six endorsements; each is intended for use with a different base form; for example, one endorsement is intended for the HO-2 and a different endorsement for the HO-3). The relevant endorsement also excludes loss of income.
  • To garner coverage for home-sharing activities without question (not depending on the unendorsed homeowners' policy) and to provide more specific coverage for the home-sharing exposure (rather than using a home-based business endorsement), the correct Broadened Home-Sharing Host Activities Coverage Endorsement is attached. This endorsement extends liability and property coverage to the homeowner (including loss of income). (NOTE: Like the Home-Sharing Host Activities Amendatory Endorsement, there are six different endorsements available depending on which base form is used (for example, HO 3 vs. HO 5).)
  • Regardless of the form or endorsement used, there still must be a covered cause of loss; and since this discussion started with a business income question related to the Outer Banks of North Carolina, there is no coverage because the loss was caused by power failure. There does not appear to be a way to delete the power failure exclusion.

Does this pretty much encapsulate our conversation?

A. Yes, I think you recapped the information quite well. Reporters like you just don't get the recognition they deserve.

Q. Wow! Thank you, very much. I sometimes feel the same way, but it's nice to hear someone else say it. By the way, I wanted to ask you about that beautiful pin you're wearing on your lapel; it really is eye-catching.

A. Oh, you must mean my Trusted Choice pin. Yes, it is quite a head turner, isn't it? Trusted Choice agents offer their clients access to multiple companies and make a commitment to quality service. These agents dedicate themselves and make a commitment to the consumer from beginning (finding the best coverage at the appropriate price) to the time of a claim – including walking the insured through the claim process and fighting on their behalf to resolve problems. I guess if you look at it from a realistically, Trusted Choice agents are an insurance consumer's best ally. 

Last Updated: September 1, 2017

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