The companies emerging out of the sharing economy offer ways for users to make money using previously untapped resources, such as renting out an unused apartment for the weekend through Airbnb or inviting others over for a restaurant-quality meal with Feastly.
These new types of businesses are also leading to growth for insurance providers and brokers seeking to protect their clients from evolving risks.
Many sharing economy companies now provide their own insurance policies, often with $1 million worth of protection, free of charge for users. Feastly provides coverage for illnesses or property damage guests may sustain while at a cook’s home. Airbnb, which previously covered damage to a homeowner’s property, added secondary insurance for guest injuries in January. Last month, Airbnb bumped up the insurance to primary status.
But Michelle Tartre, an agent-broker at Ives Insurance Services, warns there are still gaps in coverage that participants should pay attention to.
Feastly’s insurance won’t cover damage to the cook’s own property and Airbnb’s guest injury policy has a $10 million aggregate cap per year. That means that after provider Lloyd’s of London pays out $10 million, potentially in as few as 10 cases that reach the $1 million per incident limit, the policy will be exhausted. Airbnb said it’s had 8 million guests since January and fewer than 50 claims have been filed, but Tartre said the risk is still worth guarding against.
“This is a huge business and we live in a litigious society where $10 million will only go so far,” she said.
Tartre has helped Feastly cooks take out relatively inexpensive restaurant insurance policies for about $500 per year and add vacation rental protection. Sharing economy clients represent about 25 percent of her business, but for now, it’s still a niche segment of the market.
“In the next three to five years, this is going to be a normality for the insurance industry,” Tartre said.
Insurance providers traditionally shied away from sharing economy clients, dropping home insurance coverage if they found out residents were renting rooms on weekends or terminating car insurance if drivers were part of a ride-sharing company. Those traditional policies didn’t cover commercial activities and commercial policies were much more expensive than what customers were used to paying.
Providers, however, are increasingly exploring new types of policies to accommodate sharing businesses.
“The biggest challenge is that it’s the great unknown,” said Jim Reeves, research and development group manager for Mercury Insurance, a Los Angeles-based company. “It’s much different than anything we’ve ever faced as an industry. But it’s also an opportunity. It takes an awful lot to understand just what the gaps in coverage are. If it’s difficult for us to understand the gaps, and this is what we do, a typical person might not know when they’re covered.”
Reeves pointed to the complexities around ride-sharing insurance. Insurers divide ride-sharing activity into three phases: when a driver has their app turned on, but hasn’t accepted a fare; after a driver accepts a fare, but hasn’t picked them up yet; and once the passenger is in the car on the way to their destination.
Uber and others offer $1 million liability coverage during phases two and three and contingent collision coverage only if the driver already has that coverage on their underlying plan. During phase one, Uber provides $50,000 injury and $30,000 property coverage in California, without collision.
In May, the California Department of Insurance approved coverage options for ride-share drivers that would allow for commercial activity. Assembly Bill 2293 went into effect two months later, mandating companies offer their own phase one coverage and preventing drivers from using personal policies unless they were written specifically for ride-sharing.
Mercury debuted its ride-sharing coverage on Nov. 17, which offers collision insurance for the first phase of driving. Reeves said some companies’ hesitance reminded him of rejections decades ago for drivers with too many speeding tickets.
“Many companies can’t quantify it, so they won’t accept it,” Reeves said. “(But) if you can find the right rate for it, then there’s no reason not to accept the business.”
Under the Caution Flag
Insurance Commissioner Dave Jones said insurance companies were right to be so conservative because they needed to ensure they had resources to pay future claims. Because there’s relatively little data to draw on so far, they needed to be careful before jumping into new types of coverage. But expanded options in one area, like ride-sharing, does not mean other types of sharing economy insurance are guaranteed to follow, Jones said.
“It’s not one monolithic market,” he said. “Each and every one of those different business models pose different risks.”
Brokers working with sharing economy clients sometimes find themselves in talks with insurance providers to educate them on specific business models. Hugh Leslie, a client executive with Barney & Barneywho helps run its technology and life science team, said the firm has helped tailor coverage on a per app basis.
A carrier may want a communicable disease exclusion in a food-sharing policy to guard against paying when a chef accidentally passes on a serious disease, but Leslie said he’s worked to make sure food poisoning, a major demand from cooks in the policy, is covered.
“This is a recognized growth area for the company,” Leslie said. “Any insurance company that’s out there right now, it’s an interesting area for them to look longer term and grow their book of business.”