New Fannie Mae rules could cause insurance headaches

"The insurance industry as a whole hasn't come to terms with the concept"

New Fannie Mae rules could cause insurance headaches

Insurance News

By Lyle Adriano

Although lender Fannie Mae recently allowed homeowners renting out their residence on Airbnb to apply for specific mortgages, a limitation could complicate things for would-be borrowers.

The limitation requires Fannie Mae borrowers to have insurance that covers typical household risks such as fire. The problem is that such homeowner policies usually do not cover customers renting out their primary residence on Airbnb. While Airbnb offers free host protection insurance – covering liability claims up to $1 million, subject to certain exclusions – it does not cover the host’s house.

“The insurance industry as a whole hasn’t come to terms with the concept because they don’t know how to charge for the particular risk,” Riskguard Insurance Solutions broker Kelson Herman told the San Francisco Chronicle.

“From what I’ve seen, the majority of homeowners who are already doing Airbnb have not told their carriers. They are running the risk that they may not have their claims paid, because standard homeowners policies don’t cover Airbnb,” Herman added. “The ones who are getting into it now are a little more careful, they are asking carriers beforehand.”

While individuals who rent out their home or apartment to long-term tenants have the option to apply for a landlord’s policy, the coverage will not apply to short-term rentals.

The Insurance Information Institute has warned on its website that standard homeowners and renters insurance policies were designed with personal risks in mind, not commercial risks. The trade group remarked that some insurers will consider “peer-to-peer home rental” a business, and thus will require policyholders to purchase a business policy – either a hotel or bed-and-breakfast policy.

Insurers, mortgage lenders, and Airbnb all recommend customers speak with their agents regarding short-term rental activity. However, some hosts are afraid to discuss such things with their agents, for fear of having their policies revoked. Others think that they are already covered by Airbnb, but the company’s policy only covers for guests suing for bodily injury or losses to the guest’s property.

 

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