The role of insurance in the short-term rental sector

UK: Ahead of the upcoming Short Stay Summit at Tobacco Dock, London, on Thursday 19 May 2022, STRz speaks to some of the industry leaders on the topic of the specialist insurance needs of the short-term rental sector.

We hear the views of Louise Birritteri of Pikl, Leo Walton of Guardhog and Paul Marshall of Alan Boswell Group.

  • What will drive the pick-up of insurance in the sector?

Louise Birritteri: When people choose to share an asset as expensive and important as a home with guests they want to feel comfortable that their investment is protected. Equally, guests want to know that they are protected should they have an accident for example whilst they are holidaying.

From our market research, we know that most people sharing their home may have bought property insurance which they don’t realise is invalidated or has large gaps in cover when they have guests staying. It’s this lack of education and understanding which has led to the low level of adoption of the correct insurance in this market place.

At Pikl, we believe the insurance market has a duty of care to properly identify customers who participate in home sharing and make sure they have the correct insurance options provided to them when they buy property insurance. This is why we are working across the insurance market to help stimulate change in customer buying journeys to resolve this.

Leo Walton: At a very high level, we have seen a huge push to professionalise the short-term rental sector, which is driving really positive behaviours. I would expect most property managers these days to require their hosts to have valid insurance in place for their property and only to use contractors – for maintenance, cleaning etc – who are appropriately insured themselves. All of which is great for our sector.

However, from a guest perspective, I don’t see how having insurance in place [which after all isn’t a legal requirement] is going to impact where they choose to stay. A guest wants to have certainty that a property is going to be as they expect it to be when they arrive and that it is professionally managed. Whether or not the host has bought insurance will be slightly irrelevant from that perspective.

Paul Marshall: We’re finding that more property owners are moving from Assured Shorthold Tenancy [AST] lets to short stay letting for tax reasons, partly driven by the increase in people opting for UK staycations rather than going on holiday abroad, given recent travel uncertainties.

The risks associated with not being insured correctly need to be highlighted more prominently in the industry’s marketing and we could see an increase in uptake that is driven by publicity given to claims being declined under household policies for short-term rental activity.

  • How have you designed your products so that they provide the right cover and offer good value?

LB: There is a broad church of operators in the short-term rental market; amateur individual home sharers to professional operators with multinational operations.

Our products have been designed to meet the needs of the different segments which exist through research and collaboration with operators. Often, for the large professional operators it will be a bespoke product which is designed to meet their needs.

At the amateur level, the products have been designed to help these customers get the best priced deal on their insurance and include ‘pay-as-you-go’ options. At the professional end, we include technology services to help prevent claims and verify guests identities as well as protect the insurance protection needed.

LW: The short-term rental movement hasn’t created the need for a new type of insurance; we’re still talking mainly about damage to buildings or contents, or potential third party liability, all of which are totally standard ‘perils’ on a property insurance policy. I prefer to frame this as a ‘risk gap’, rather than an ‘insurance gap’, created by a homeowner allowing someone else to use all or part of their home for a period of time.
We are obsessed with this ‘risk gap’ and the focus of our technology is to help remove that gap entirely through a SaaS [software-as-a-service] technology to ensure that a host always knows who their guest is and what they are like, combined with insurance backing for the rare instances when things still do go wrong. Preventing issues is enormously more cost effective than simply paying to fix damage when it has happened, so those who embed SUPERHOG technology into their user journey benefit from extremely low costs and the highest protection limits in the sector.
PM: We have an experienced team in this sector and have had a short stay product in place since 2016.
When we started looking at developing a new offering, we completed a considered fact find to ensure the risks were fully understood and at the heart of the matter. Our recently launched product has been developed in conjunction with a leading UK insurer and has the flexibility to switch between short stay letting and landlord letting, and we have additional cover to offer such as business interruption and pet damage.
Development doesn’t stop once the policy has been launched though, we continually review our cover and undergo ongoing testing of our pricing to ensure it is still suitable for the market.
  • Why should property management companies take a role in helping customers take out insurance?
LB: Properties managers will want to minimise the potential for a property not being usable due to a claim, where this is not only going to cause increased expense but reduce profits.
If a guest were to be injured then this could lead to significant legal action and distraction. If the homeowner is not properly insured then all these issues directly impact on the property manager.
Property managers and platforms are in a unique position to be able to work with insurers to prevent these risks and resolve them quickly should the worst happen and by working in partnership with specialist insurers like Pikl, they can provide a valuable service to their clients.
LW: It is undoubtedly in the interest of every party involved in the short-term rental sector to be appropriately insured, and property managers and OTAs have a responsibility to help educate hosts of the risks involved in making money from paying guests, as well as to ensure they are going into it with their eyes wide open as to the other pitfalls of hosting such as increased wear and tear, for example.
However, PMs and OTAs definitely see huge benefit to their business when these risks are well managed, particularly in maintaining low operational overheads and ensuring positive host experiences for every booking. The more the PMS and OTAs can close this risk gap, the more profitable their business will be; it’s as simple as that.
PM: Insurance is a vital part of the property management equation. Property managers will know from experience the risks associated with letting a property and can advise property owners accordingly. It’s in their interests to ensure appropriate cover is in place to save unnecessary awkward conversations with property owners if, and when, damage or incidents arise.
Property management companies can use their experience and connections to put clients in touch with reputable and specialist insurers. This is, however, caveated by the fact that property managers cannot directly arrange insurance [which is a ‘regulated activity’]. So, whilst they can help provide information, the insurance broker or insurer will always need to confirm the details with the policyholder directly.
  • What scenarios are there where insurance would provide cover that you might not think of?

LB: Some of the most significant claims seen are for public liability – where a guest has an injury.

A 2019 Quality in Tourism survey showed that 83 per cent of consumers felt it was essential that short stay accommodation has insurance in place. Guests are used to the fact that it’s usually mandatory for hotels to have public liability protection in place and they assume this is the case with vacation stays.

If a guest has an injury, they could potentially sue for millions. Even just fighting the court case could take hundreds of thousands of pounds.

It’s just not worth the risk.

Some of the most common claims we see are guests having parties and trashing the property or even stealing from it. This can again run into hundreds of thousands of pounds of damage and significant hassle which is not covered my most insurers.

For the small number of insurers that give protection, most often put high minimum claims or low maximum claims limits on them.

At Pikl, this is a core area of cover for us.

LW: Whilst there is not currently any legal requirement in the UK to maintain property insurance of any type when entering into the hosting arena, it could be potentially disastrous not to have appropriate insurance in place. As well as the potential for damage to your home, the consequences of injury to a guest, for which a host is found liable, could be life-changing. These are not new risks – more and more property insurers are allowing homeowners to engage in short-term rental activity without invalidating coverage, but it is vital that you have told your insurer of any such activity and understand their response.

Then make sure you have a plan in place to suit you, in relation to any damage that your guests might cause. This could be anything from holding a large deposit, only accepting friends of friends, through to the financial backing from SUPERHOG guest screening checks. Focus on professionalising yourself as a host and do all you can to close the risk gap.

PM: Our serviced accommodation policy also covers ‘rent-to-rent’ which most people wouldn’t traditionally think of as serviced accommodation. The policy will provide cover for an unoccupied property for 30-45 days at a time [depending on the insurer] with no limit to how many times this can occur in a policy year. This means that you don’t need to move the property to an unoccupied property policy unless this period is exceeded.

The Short Stay Summit on Thursday 19 May will feature a vibrant mix of presentations from many high-profile industry leaders alongside fireside chats, panel debates and plenty of opportunities for networking.

A number of leading industry brands are sponsoring the event, including title sponsor Vrbo [part of Expedia Group], platinum sponsors Booking.com and Host & Stay, gold sponsor Styled Interior Design, silver sponsors Sykes Holiday Cottages, Beyond, CoStays, Awaze, Hospiria and UnderTheDoormat, and ruby sponsors PriceLabs and Guesty.

On the evening [Wednesday 18 May] preceding the event, the annual Shortyz Awards, organised by ShortTermRentalz, will be held near to Tobacco Dock at The Skyline London to celebrate the excellence demonstrated by companies in the sector.

Book your tickets for the 2022 Short Stay Summit at this link.