The sharing economy reaches far beyond rides and vacation rentals. Entrepreneurs are creating on-demand solutions wherever the sharing approach shows promise, targeting everything from services such as deliveries, home repairs and gardening to sharing personal property including baby strollers, tools and formal wear.
By 2025, the sharing economy could reach $335 billion from just $15 billion in 2014, PwC estimates (source). The business of facilitating business between strangers, however, creates some unique concerns when it comes to insurance.
Sharing ventures generally involve services, such as rides, pet care or handyman work, or assets, including homes, cars, bikes or scooters. Because their business models are new, sharing economy companies have limited histories and little actuarial data for insurers to use to price risk. Each company presents a different risk profile, making it necessary to tailor each program. In addition, only a limited number of markets are writing insurance for sharing economy companies. For those reasons, it’s crucial for companies and their brokers to be prepared to make their strongest case to insurers.
A major consideration is whether the company has built in the proper controls and data capabilities to protect users and providers. Those controls include background checks, scoring systems for service providers and users, along with user and service provider agreements. For instance, ride services have to scrutinize the traffic records of their drivers. A handyman service needs to vet workers who go into people’s homes. Considerations for repair and landscape services include whether the providers are established businesses with their own licenses and insurance or simply individuals looking for extra work. A dog-walking service will want the ability to track the actual times and routes the dog walkers take.
Insurers will also want to see much of the same information as potential investors—and more. That includes assessing the company’s business plan, its executive team, financial backing and investors. Carriers want to know that the insured is going to be able to pay the premium, and whether those payments will initially be coming from venture money or individual wealth.
VEHICLES AND TELEMATICS
Services that depend on vehicles present specific challenges. A recreational vehicle sharing service, for instance, has to provide assurances about the maintenance of the vehicles being offered, while also tracking mileage and monitoring the driving behavior of renters. Telematics are particularly important for rideshare and delivery firms to track driving behavior and data that correlates with loss history and loss results. That includes vehicle location and vehicle performance, as well as miles driven.
Hired and non-owned auto coverage is crucial for companies that depend on vehicles, from ride-sharing to delivery and concierge services. For ride-sharing services, coverage is divided into three periods:
- Period 1 – when the driver is logged in waiting for a ride
- Period 2 – when a driver has received a request and is on the way to pick up a ride
- Period 3 – when the driver has a passenger
Each of these periods involve different levels of coverage that must meet state-by-state requirements. The types of passengers also make a difference, say children or medical patients.
ERRORS AND OMISSIONS
The technology used by sharing companies, as well as the services they offer, give rise to errors and omissions exposures. By providing the technology platform and mobile app, the company can open itself up to claims of negligence. Exposures for services such as picking up dry cleaning, baby-sitting or pet sitting include bodily injury and property damage as well as negligence for shortcomings such as insufficient background checks.
(source 2; source 3)
The sharing economy represents a vibrant and innovative sector, but one that is challenging for insurers when it comes to pricing risk. The more data that a company can provide to underwriters, the better case they can make to the few carriers that are active in the space—each of which has a specific appetite. As sharing economy companies gear up, insurance may be an afterthought, which can make the process of securing proper coverage much more difficult. By taking insurance into consideration from the start and working with a wholesale broker specializing in sharing economy companies, retail agents can be better prepared to provide the data that insurers need to accurately price risks for their clients.
Contact a CRC Group producer for more information.
- Andrea Ward is an Assistant Vice President in CRC’s San Francisco office and a member of the Casualty Practice, specializing in the sharing economy.
- Josh Chassman is a Senior Vice President in CRC’s San Francisco office and a member of the Casualty Practice Advisory Committee, specializing in the sharing economy.