The decline in the availability of rentable homes in the UK – as landlords increasingly turn flats into vacation homes – suggests that insurers should be more inclined to investigate the prospects of the host insurance market.
The concept of host insurance has recently emerged in the marketplace due to the growing popularity of online vacation home sites. Examples such as Airbnb have paved the way for these new types of insurance products to fill the gaps created by the ways in which modern consumers opt to live their lives, particularly in relation to housing and the sharing of accommodation.
According to the Residential Landlords Association (RLA) an increasing number of landlords are taking their flats off the open market and advertising them on websites like Airbnb instead, particularly those based in London. In its report, the RLA claims that approximately 41% of properties advertised on Airbnb in London are multiple listings, indicating the involvement of a single owner advertising several properties.
This has significant implications for the residential lettings market as well as for the insurance providers offering cover for both landlords and tenants. For buy-to-let landlords, there are particular tax advantages for those who rent out their properties as short-term holiday lets as opposed to long tenancy agreements: by 2017, they will no longer be able to claim tax relief on mortgage interest payments.
As a result tenants face a shortage of rentable housing, which in some instances is one of a very limited range of accommodation options considering the high property prices within inner-city areas, especially London. Coupled with this, landlords are also putting themselves and tenants in a vulnerable position without adequate insurance cover.
For the insurers supplying the residential property market, this means fewer homes for which to provide landlord or personal contents cover, and as result, insurers should be leaning more towards the development of new products such as host insurance. This type of cover plays a vital role in ensuring the property owner and the tenants/guests remain fully protected if the property is let for a very short term.
Home sharing has surged in popularity as home owners look to monetize their space for extra income. But what many hosts do not realize is that by welcoming paying guests into their homes for a short period, they are often invalidating the landlord insurance policy currently held, particularly if all paying guests are supposed to be contracted to the property for a prolonged period of time.
The RLA is also concerned that many tenants may be sub-letting flats to short-term visitors, and while this may be an approvable move for outright home owners, for tenants in rented accommodation this would be unaccepted by the landlord of the property and a direct violation of the insurance policy.
Regardless, this is an avenue insurers should look to explore. The UK sharing economy is growing, with consultancy firm PricewaterhouseCoopers estimating it could be worth as much as £9bn by 2025. Insurers should look to capitalize on the opportunity it provides by adapting their existing policies to meet the changing dynamics of the property sector, and host insurance appears to be more than an adequate solution. The concept of host insurance will also be crucial, not just for the property sector but also as society finds other assets to share.
For more detailed insight into the concept of host insurance and the residential property space, see our report on UK Private and Commercial Landlord Insurance 2016.
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