Insurance Implications with Airbnb

Typically, Residential Management Companies (RMCs) or Managing Agents will arrange Buildings and Property Owners Liability Insurance on behalf of individual leaseholders for an entire block of flats, which would usually include cover for “Perils” such as:

• Fire / Lightning / Explosion
• Aircraft Impact
• Earthquake
• Riot/civil commotion
• Storm or flood
• Malicious damage
• Escape of water (including burst pipes)
• Sprinkler leakage
• Impact
• Theft
• Subsidence
• Accidental damage

When arranging any type of insurance “Material Facts” must be notified to the underwriter so that he/she can choose whether or not he/she accepts the risk in the first place and decide what premium to charge and/or what terms to apply (e.g. what level of excess to apply).

The type of occupancy of flats within a block is deemed to be “material”, and traditionally these occupancies have been categorised by insurers with different levels of risk attached:

• Owner occupier
• Working People (also known as Professional let)
• DSS
• Retired
• Vacant

The make-up of occupancies within a block will have a bearing on what level of premium is charged or what terms might apply. For example, a Vacant property generally represents a much higher risk than an occupied property. The risk of Escape of Water increases as leaks are more likely to go unnoticed and so have the potential to cause severe damage. Vacant flats might also be more susceptible to break-ins as they might be targeted by criminals.

The rise of companies like Airbnb, who offer very short term rental, presents a new category of occupancy which currently the insurance industry is unclear on. Some underwriters may for example view very short term rental as a higher risk as the tenants might not treat the property in the same way than if they owned the flat themselves and therefore might be inclined to charge more premium, increase excesses or decide not to provide cover.

If the correct occupancy isn’t disclosed to insurers, there is a real risk that claims can be rejected for “non-disclosure” of material facts.

There is an element of protection afforded to RMCs and Managing Agents under many property owners’ policies by way of a “non-invalidation clause” which essentially states that the policyholder cannot be penalised for material facts that they were not made aware of. However whilst we advise that you should check that your policy carries such a clause, we do not recommend that RMCs or Managing Agents rely on such clauses.

To have a belts and braces approach, and to avoid potential issues in the event of a claim, Champion Insurance Brokers recommend that regular reviews with leaseholders are undertaken so that all occupancy types can be identified and disclosed to insurers.

Champion Insurance Brokers understand the Property Owners Insurance market and have extensive experience in arranging cover for blocks of flats. Should you require assistance ensuring you are fully protected, please contact us on 03330 430 430 or email info@champion-insurance.co.uk.

For further information on insurance for blocks of flats, please click here.