What Insurance Is Required For Short Term Rental Owners (Or Airbnbs) To Stop “We’lll not pay because of non-disclosure of material facts!”

Dear Agency.CapeHolidays.Info Owner

You agreed with Agency.CapeHolidays.Info to manage and market your home on listing sites like Airbnb. You expect a fair return. And from experience, you know you are in good hands.

You were well on your way. But then COVID struck. Everyone in the industry suffered massive losses, with booking income dropping right down to zero. And it remained at zero for a long time… The COVID havoc made you think. Made us all think about the exposure to risks, and in this case specifically to the loss of income.

No one expected the unreasonable and unjustified harsh attitude AirBnB (and other booking platforms) would take towards their hosts. All hospitality establishments experienced frustration.

At Incompass Insurance Consultants we create bespoke insurance solutions for our hospitality accommodation clients – we address risks such as loss of income, public liability, damage or theft by guests to name a few.

Unfortunately, most people assume that by having some kind of insurance in place, they’re automatically covered. That’s not necessarily the case – you might be insured on a personal policy, that covers you only in your personal capacity – meaning liability & theft claims will not be covered should the property be used for business purposes. And short term letting is considered business use by South African insurers.

Your property’s “type of use” has to include business use, or else any claim could be rejected (even geyser bursts or storm damage). The insurer will use their favourite rejection reason: it’s called “non-disclosure of material facts”. This basically means they were not made aware of the actual type of use of the property and hence will not be settling the claim.

But wait – you called the call centre and told them on the phone that you’re renting the place out. Which means you disclosed, and you should be insured right?

Right?

Except, you might not be. The truth is, that statement you made to the call centre agent often means very little to them. They can often only read from the options available on their screen… What you should rather do is pose 5 specific questions to them, and ask for their answer in writing:

• If my short-term letting guest accidentally burns down the house, am I covered?
• If a short-term letting guest falls down the stairs and sue me for their injuries, am I covered?
• If a short-term guest forgets to lock the front door on their way out and I’m burgled without forced entry, am I covered?
• A management agent looks after the property and bookings for me, am I covered if they advise guests incorrectly, forget to lock the front door or accidentally cause damage?
• If my guest cannot honour his booking due to being hospitalised or attending a funeral, would my loss of income be covered?

Chances are, the words “short term paying guest” is going to result in all of your questions being answered with a resounding “NOT COVERED”. If you receive NO as an answer to any of the above, then you can be sure that you don’t have the widest cover available to short term letting establishments. If you’re going to bother paying insurance premiums, don’t you want to be sure that the cover is 100% correct? Just because you pay your premiums doesn’t mean you’re correctly covered.

An additional complication is that your property is managed by a third party. You’re not even controlling the risk… Agency.CapeHolidays.Info often manages all aspects of the booking process – marketing, communicating with the guests, handing over keys, showing guests the “house rules”, dealing with guest complaints, cleaning and being responsible for maintenance as well as repairs & replacement. Agency.CapeHolidays.Info is in full control of the risk, and therefore really needs to be noted as a co-insured. Agency.CapeHolidays.Info has an insurable interest.

Incompass Insurance Consultants specialises in short term letting insurance. We strongly advise owners to co-insure their agency when possible, because the agency is part and parcel of the success or failure of the enterprise. The agency is often in full control of the risk, more so than the property owner. And for this reason, we always include the management agent as a co-insured – it gives the insurer fewer reasons to reject a claim one day.

Incompass Insurance Consultants help ensure that our clients, who rent out their premises (via agencies or other) to short term paying guests, are correctly (and competitively) insured. It’s so much a part of what we do that we are the largest hospitality establishment insurance brokerage in South Africa and are the preferred insurance provider for the NAA, GHASA and the Tourism Grading Council.

What kind of cover does a guest establishment require?

• Commercial public liability cover that will pay out should either of the owner or management be negligent in not pointing out specific risks such as slippery tiles
• Damage caused by guests, such as red wine stains on carpets, or accidentally breaking an appliance (guests can sometimes do really stupid things…)
• Theft by guests, during the booking period
• No alarm requirements (guests often do not adhere or can’t remember the code)
• No forcible entry required (even when the guest goes out for the day) whilst the property is tenanted (between arrival and departure date)
• Loss of income cover – in case of fire, storm damage, burglaries, construction noise within 100m, cancellation beyond the control of the guest, and more
• Locks and keys (guests sometimes take the keys with them)
• Plumbing and electrical repairs, such as blocked toilets/drains
• Mechanical repairs to tv’s, hi-fi’s, fridges, freezers, stoves, microwaves, washing machines, tumble dryers, dishwashers – up to R3,000 with an excess of the only R280

It’s not in your (and your agent’s) interest to have the incorrect insurance in place. It’s also not in your interest to pay a higher premium than necessary. At Incompass we address both these issues, thereby giving our clients the widest cover at the most affordable premiums (often lower compared to personal insurance premiums).

Disclosing to your insurer’s call centre agent that you’re an AirBnB host is not enough – you need written confirmation, signed and copy stamped, that they can answer yes to most if not all of those 5 very important questions.

For more information, visit www.incompass-insurance.co.za/airbnb

By Jan Wink,

Incompass Insurance Consultants (FSP23418)