Insuring the Sharing Economy

Any doubt about the depth of wisdom of a mother’s time-honored aphorism to “share and share alike” has been laid to rest by the meteoric rise of the sharing economy.

From Airbnb to Zipcar and an ever-growing list of collaborative enterprises, the opportunities for consumers and entrepreneurs abound almost equally. No matter whether you attribute the expansion of this market segment to a resurgence of savvy consumerism or the natural evolution of an on-demand, pay-only-for-what-you-use mindset, the peer-to-peer and sharing economies look to be around for the long haul.

Consumers of peer-to-peer and shared services are able to access everything from power tools to cars to spare bedrooms to European castles. These services are not new. Boarding and guest houses date back to at least the Roman republic, and an underground barter economy has been thriving in the U.S. and elsewhere for decades.

The variety of names that reference the sharing economy belie the reason for its success. Collaborative consumption and an asset-light lifestyle can be summed up best as, “Why buy when you can borrow?”

Service Providers

On the opposite side of the peer-to-peer relationship from consumers are service providers. These are people with something to share, from a loft in Berlin to parking spaces in Poughkeepsie.

Not quite entrepreneurs, they are in need of something extra, whether it’s cash or a sense of community. They are linked together by online matchmakers like Airbnb and Uber. The digital intermediaries provide varying levels of vetting of providers and take a small percentage of each transaction for connecting buyers with sellers and providing a payment platform.

The whole system is bound together by trust. Not the trust of individual strangers, but of a collective of strangers. It seems there is not only strength in numbers, but trust as well.

Whichever side of the transaction you’re on, trust alone is not going to protect you if something goes wrong. That’s where insurance enters the picture. If you’re going to participate in one of the sharing economy’s two biggest markets — accommodations and automobiles — there are some basics you should understand.

Renting Your Home

Insurance companies have caught on to the popularity of homeowners renting rooms in their homes in a peer-to-peer network and the added risk of loss and liability it represents. The result is that a growing number of homeowners insurance providers are adding exclusions for paid guests.

Most homeowner policies will allow you to rent out your entire house for up to one month per year without requiring a landlord policy. If you decide to rent one or more rooms of your home to visitors, be sure to carefully read your policy. If exclusions are there, ask your agent if an endorsement is available.

Beginning in 2015, Airbnb will be offering landlord liability protection through its Host Liability Insurance Program.

Renting a Stranger’s Home

When you stay in someone else’s home as a guest — regardless of whether you’re paying or not — and are injured, your host is responsible for paying your medical expenses, even if they don’t have insurance.

There are a couple of important caveats to keep in mind. Liability laws vary from country to country, so when you’re traveling outside the U.S., you will have to inquire about each country’s laws and insurance regulations.

The good news for Airbnb users is that starting in 2015 all Airbnb hosts will be covered by the company’s $1 million liability protection plan as either their primary or secondary form of insurance.

Renting Your Car to Strangers

There is a whole new class of peer-to-peer services that match travelers driving to and departing from an airport with arriving travelers in need of a car. These services, including FlightCar and Relay Rides, then make arrangements for the arriving travelers to rent the car that would otherwise be racking up charges in an airport parking lot.

Renting your car in this way requires that you take several steps, starting with carefully reading your policy for terms regarding drivers that are not listed on the policy. Some sites like FlightCar insist their insurance protects participants’ cars in the event of an accident or theft, but state laws may not allow that.

For example, New York law requires the owner’s policy to pay claims before a third-party insurer does. That can result in substantial rate increases if an accident happens.

Renting a Stranger’s Car

In most cases, your existing insurance will cover you when you drive someone else’s car, whether it’s a commercial rental or a friend’s car. However, you should always read your policy and consult with your insurer to be certain you are covered and for what.

For example, you may only be covered for liability (injury to others) and not collision (damage to the vehicle you are driving). Some peer-to-peer rental services offer supplemental collision coverage for an added fee.

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