Is Airbnb's new $1 million Host Guarantee more fluff than substance?
That's the viewpoint of a HomeAway co-founder and also an insurance executive at CBIZ Insurance Services, a major vacation-rental insurer, both of whom think the Airbnb guarantee is relatively empty when it comes to additional coverage.
Carl Shepherd, co-founder and chief strategy and development officer at HomeAway, an Airbnb competitor, praises Airbnb's Host Guarantee for drawing attention to insurance issues for vacation-rental owners, but he dismisses the initiative merely as "great marketing."
The Airbnb Host Guarantee does little in the way of providing any "any additional protection," Shepherd argues.
Both Shepherd and Scott Wolf, president of the national program insurance division of CBIZ Insurance Services, contend that Airbnb's Host Guarantee would only come into play after existing homeowners' insurance is exhausted.
And, this analysis goes a long way toward explaining how Airbnb might be able to afford to give hosts free property-damage protection of up to $1 million per booking.
The financial burden wouldn't be great if claims are rarely paid out, goes the thinking.
Wolf argues that the insurance premium that Airbnb pays its provider, Lloyd's, likely is minimal because the coverage is "excess of the owner's policy."
Thus, as homeowners generally are required to have property insurance, the Airbnb coverage would kick in -- at Airbnb's discretion -- only after the owner tried first to collect from the guest and then through an existing homeowner's insurance policy, Wolf adds.
Wolf points to the following paragraph in Airbnb's 25-page host-guarantee terms as defining its excess-coverage nature:
You must use your best efforts to seek recovery from the Responsible Guest for any Covered Losses. If you are unable to recover such Covered Losses or damages within a reasonable period, then you must seek recovery to which you may be entitled, from any person or entity other than the Responsible Guest or Airbnb, with respect to such Covered Losses.
Or stated another way, you must collect from the guest or your existing insurer before considering submitting a claim to Airbnb, Wolf says.
"My concern about Airbnb promoting this coverage is that it gives a false sense of security to the vacation rental owner," Wolf says.
When you read Airbnb's Host Gurantee terms, it reads like a typical lawyer-crafted document.
However, when asked to clarify the language in the above paragraph and, in particular, these words, "...then you must seek recovery to which you may be entitled, from any person or entity other than the Responsible Guest or Airbnb, with respect to such Covered Losses," Airbnb spokesperson Kim Rubey says: "The clause you point to was not meant to convey a legal term."
And Rubey denies that the Airbnb Host Guarantee is only for coverage beyond existing homeowners' policies, saying:
We typically pay on the claim prior to the host seeking such coverage from his or her insurance. We do expect our Host Guarantee to be the primary source of coverage for our hosts.
Rubey says the Host Guarantee provides homeowners with "the ultimate peace of mind" and is the "greatest protection" available in the sector.
The quandary then is: Should you believe Airbnb's clarification that its coverage comes before existing policies or should you rely on an insurance expert's advice that the language of its terms means the guarantee is only triggered after homeowners' policies pay for damages?
Wolf of CBIZ Insurance Services also examines other loopholes, noting that the Airbnb Host Guarantee doesn't cover homeowners' main areas of exposure: liability for a guest injury and loss of business income due to damage from weather-related events such as hurricanes or tornadoes.
Among other problem areas, Wolf says, property owners are required to have ensured there were positive reviews about guests before renting to them, and must submit a claim within 14 days of the incident or before the next guest stays at the property.
And, Wolf argues that the following paragraph in the Airbnb Host Guarantee terms reinforces the notion that its introduction is mostly about promoting the site. It states:
Airbnb provides Hosts with the Airbnb Host Guarantee benefits described herein free of charge solely for the purpose of promoting use of the Site, Application and Services by building customer loyalty and strengthening customer confidence as to use of the Site, Application and Services.
Meanwhile, HomeAway takes a different tack, marketing CSA Property Damage Protection to owners and guests for a maximum of $5,000 in coverage for a $59 fee.
Owners can sell it to guests in lieu of demanding deposits and travelers can take out coverage on their own, as well.
"Property Damage Protection enables travelers to replace deposits with insurance designed to cover damages a traveler may accidentally cause to a vacation rental," Shepherd says. "The vast majority of security deposits are returned in full, so the purpose of PDP is to make the rental transaction easier for both the property owner and the traveler by reducing the efforts of paying, collecting and refunding deposits."
Let's see: As Airbnb and HomeAway clash in the vacation rental marketplace and vie for owner listings, Airbnb is marketing its $1 million Host Guarantee for free while HomeAway is pushing $5,000 Property Damage Protection to both owners and guests for a fee.
Shepherd of HomeAway argues that both companies are "essentially doing the same thing."
"In terms of meaningful protection, I think we match it [Airbnb], although our absolute numbers are smaller," Shepherd says.
But, if vacation-rental owners don't look deeply into Airbnb's Host Guarantee and list with Airbnb based on the $1 million glitz, it looks like HomeAway could have a big public relations problems on its hands.
UPDATE: Another insurance expert has taken a look at Airbnb's Host Guarantee and interpreted it as amounting to "excess coverage," meaning hosts would collect any damages from guests and existing homeowners' insurance policies before Airbnb's coverage gets triggered.
In other words, Airbnb's insurer would end up compensating hosts for damages very infrequently.
Several paragraphs of Airbnb's terms advise guests that their credit cards will get charged if damage is done to the property "so why would you need the Host Guarantee," the insurance expert says.
Importantly, the insurance expert pointed to the following statement in Airbnb's terms detailing some of the "excluded losses" as meaning that existing homeowners' insurance policies are "primary" and Airbnb's policy is excess coverage:
losses or damages for which you are compensated or reimbursed from a source other than Airbnb including without limitation: (i) amounts received under an insurance policy, guarantee or indemnity; (ii) a security deposit; or (iii) payment directly by the Responsible Guest or an Invitee, or other party or an insurer or guarantor of such party.