For example, the Pan Am Games are coming to Toronto this summer and, according to a promotional email I received recently, it’s a great time to consider becoming an Airbnb host.
Not interested in renting space in your home to strangers? Then what about using your car to become an UberX driver? Uber is fast becoming one of the most popular ways for people to earn a few extra bucks — and it’s relatively easy to sign up. All you really need is a car, a valid licence, and auto insurance.
As a consumer, there are many new experiences to engage in. Opportunities offered by the likes of Airbnb and Uber are exciting and, perhaps, may even be changing us into the “sharing society” that we hear so much about. But what is the risk associated with these rewards, and how do the “traditional” methods of handling and transferring risk deal with these innovations?
By reviewing these two opportunities to make money from personal assets, we also look at the risks associated with each.
The idea of renting out unused space in your home, cottage, or a spare property is nothing new. But the popularity of services like Airbnb have certainly breathed new life into the concept and expanded it well into the mainstream of our culture, allowing people to advertise their properties worldwide and to compete head-to-head with hotels and other commercial ventures. For many people, owning a bed and breakfast has gone from being an idea to an increasingly common reality.
From a risk management perspective, inviting strangers to use your property through opportunities like those offered by Airbnb always increases your risk.1 However, one of the advantages of this app-based service is the ability to learn something about potential renters, including the ability to see what other hosts have previously experienced with them. Using a third party like Airbnb to help guarantee payment also helps to reduce a host’s overall risk and is an added attraction.
Of course, the use of a third party to facilitate the rental of your property, even with their provision of ratings on your potential renters, does not fully protect you, and there is still the risk that your property may be damaged.2 Moreover, there is also a potentially large liability exposure you face should the renters hurt themselves, or cause damage or injury to others while occupying your property, with the inevitability of you being named in any subsequent legal action.
Depending upon your municipality, to be an Airbnb host, you may need special permits or be required to pay fees and/or taxes ranging from sales taxes to various forms of tourism and hotel taxes. You may also face fines or penalties for breaching zoning regulations or other bylaws. If you are temporarily renting out your condo, your condo corporation, homeowner’s association, or lease may restrict short-term rentals. And some tax advisors warn that any income earned from Airbnb (or Uber) is taxable.3
From an insurance perspective, accepting payment for someone staying in your room, home, spare property, or anywhere else is a commercial activity. Whether you accept $1 or $1,000, you have entered into a commercial contract and that can change your risk dramatically.
The most notable insurance impact of this commercial activity is that your home, condo or tenant’s insurance is unlikely to cover any claims. This is a serious gap. For example, if your renters burn down the building your condo is located in, you have a significant liability exposure for which you have no legal liability insurance.
It is important to note that Airbnb offers a $1 million “Host Guarantee,” which is intended to protect hosts in the event a renter causes property damage. Airbnb introduced the guarantee after a host reported having her home ransacked and her belongings stolen.1 There are, however, lots of exclusions in this guarantee, and Airbnb makes it clear that the Host Guarantee is not insurance and does not replace your own homeowner’s or tenant’s insurance.
While it is clear that your home insurance will not cover any claims arising out of your commercial activities, it is less straightforward as to whether your commercial activities might cause your policy to be void for all claims. At a certain level of activity, the use of your property for commercial purposes becomes a material change in risk, and your insurer may decide to deny a claim for this reason. That said, in my experience, an insurer will look at the degree to which you have become engaged in a commercial activity versus an occasional activity. For example:
• Renting out your cottage for one weekend a summer to your neighbour or sibling is likely quite innocuous from an insurer’s perspective, and your insurance provider may or may not decide to charge you an additional premium.
• Posting a flyer on the local grocery store bulletin board demonstrates a more active interest in running a commercial enterprise.
• Registering your property for rent on apps and websites may indicate a serious intent on running a business, and certainly provides a clear record of your activity.
1. Taxi/licenced chauffeur-based services — these are online or appbased hailing services for taxis or licenced chauffeurs. Within the Uber world, these services include Uber Taxi (regular taxis), Uber Black (luxury cars), Uber Lux (super luxury cars), and Uber SUV (a larger vehicle that can fit more people). As a vehicle owner, these services are no different than any other taxi or livery service and are relatively straightforward to operate as a business.
2. Individual owner/operators — the most well-known of these services is UberX, basically an app that matches drivers offering their services for hire with people looking for rides. This is the most contentious and difficult of the TNC operations from a risk perspective.
This second service, UberX, is the one people are most likely to get involved with on a casual basis. However, there are all sorts of risks involved with these types of services, ranging from unexpected damage to the interior of your vehicle, to increased wear and tear on the vehicle itself, to the danger of personal harm by allowing a stranger into your vehicle.4
Working through a TNC takes care of some of these risks. Because all payment is by credit card, there is no need for the driver to carry cash, thereby reducing the risk of robbery.
The app itself allows both driver and passenger to see how others have rated their behaviour, allowing either party to withdraw from the transaction. This rating system is designed to lessen the risk of personal harm or unexpected damage by assessing past behaviour and, presumably, encouraging good future behaviour since both parties know they are being rated.
The increased wear and tear — leading to both diminished resale value and increased maintenance costs — is presumably assessed by operators in determining whether they will earn enough money from these services to offset the increase in costs.
These services are also of contentious legality: Montreal has banned UberX and has impounded over 40 vehicles from January through April of 2015, while Ottawa has fined UberX drivers thousands of dollars.5
But the biggest risks are those related to insurance and the increased likelihood of a motor vehicle accident as a result of driving more often and perhaps in more strenuous circumstances than usual.
Having reviewed the industry’s literature, and spoken directly with four insurance brokers and three insurance companies, I discovered that there is virtually no way to obtain insurance for UberX operations in Canada. Uber claims they have adequate insurance in place to protect their drivers, although they have refused to share the policies publicly so it is impossible to comment on them. In theory, you could apply for commercial auto insurance, however, as an unregulated vehicle of uncertain legal status, no insurer appears willing to issue a policy for an UberX driver.
On the other hand, it is not all bad news in Ontario. Under our no-fault system, which applies to the Accident Benefits portion of your automobile, as long as somebody involved in the accident has an in-force Ontario automobile policy, everyone will have access to Accident Benefits. It may take a while to sort itself out, but at least most of your medical bills will probably be covered.
However, if you are the UberX driver, the physical damage to your vehicle will not be covered. The Personal Insurance Company, the insurer behind the OMA Insurance group home and auto program, confirms that they would consider any use of a vehicle in a TNC as a commercial auto exposure not covered under your personal auto insurance policy.
Worse, the use of your vehicle for commercial purposes means that you are possibly violating the basic terms of your automobile insurance policy. This means that any claim you have, other than those mandated by law (such as basic Accident Benefits), may not be covered. If you have an accident while grocery shopping and the insurer finds out that you, or another family member, have used your car for UberX, you might not have any coverage on your UberX vehicle or any other vehicle under your policy since the company would declare a material change in risk and, therefore, terminate the entire policy. This means no liability insurance. So you might absorb paying for a new car yourself, but are you ready to absorb the possible milliondollar- plus liability claims against yourself personally?
And one more thing: in case you are thinking you can simply not tell the insurer about the use of your vehicle for UberX, if you get caught lying (and UberX leaves a detailed digital record to inspect), you have committed fraud. That’s not just grounds for denying your coverage, but also grounds for a criminal case against you.
The quick summary, in my opinion, is that most UberX drivers are facing a messy insurance situation at best and no insurance at worst. To lessen the risk, UberX drivers might want to tell their agent, their insurer, and their broker in writing about their activities. The downside of this declaration is that the insurer might just cancel your policy. The upside is that if they do not cancel your policy they cannot claim you did not disclose a material fact. It will still be messy, but you have more of a chance to successfully win a claim if need be.
Eventually, there will be an insurance solution for TNCs. In the U.S, there have already been policies created in some states for TNC drivers. In Canada, provincial laws and regulations make it difficult for insurers to introduce new automobile insurance policies (in some provinces, these are provided through the government itself) and few insurance companies have yet shown much interest in tackling the time-consuming and expensive task of changing regulations. As these services grow, however, both the demand for them, and the provision of them — whether adequately insured or not right now — will eventually bring enough pressure to force a solution. Until then, be careful. You are on untried, untested — and maybe uninsured — ground.
For physicians and their family members, using personal property, vehicles, or other assets to earn extra money may seem like an attractive opportunity, however, as the Airbnb and Uber examples show, there are many risks that must also be considered.
The insurance industry often moves a little more slowly than the rest of the world and takes a bit more time in catching up to these new ventures. However, at OMA Insurance, our first and foremost concern is to keep you informed so that you can make educated choices.
1. Sapona I. Airbnb: unique accommodations and unique insurance issues. [CIP Society trends paper]. [Internet]. Toronto, ON: Insurance Institute of Canada; 2014 Nov. [about 10 screens]. Available at:
www.insuranceinstitute.ca. Accessed: 2015 May 25.
2. McQuigge M. Canadians should consider risks in renting out homes on Airbnb, experts say: Calgary home deemed unlikely to be habitable for months after $75K in damage done by renters. [Internet]. Toronto, ON: CBC News; 2015 May 3. [about 5 screens]. Available at: www.cbc.ca/news. Accessed: 2015 May 25.
3. Sagan A. Airbnbers and Uber drivers be warned: your income is taxable: most users of share economy services don’t properly document income and expenses. [Internet]. Toronto, ON: CBC News; 2015 May 2. [about 8 screens]. Available at: www.cbc.ca/news. Accessed: 2015 May 25.
4. Sapona I. Uber: ride sharing and liability bearing. [CIP Society trends paper]. [Internet].Toronto,ON:Insurance Institute of Canada; 2015 Mar. [about 12 screens]. Available at:
www. insuranceinstitute.ca. Accessed: 2015 May 25.
5. Pilieci V. Ottawa won’t follow Montreal’s lead in impounding Uber cars. [Internet]. Ottawa Citizen 2015 Apr 28. [about 3 screens]. Available at:
www.ottawacitizen.com. Accessed: 2015 May 29.