Expert view: Insuring the sharing economy

Insurance has played an integral part in developing the Sharing Economy and has made significant contributions towards its growth.

What if you came home to find your house ransacked or renting out your car and never having it returned? These nightmare scenarios aren’t unheard of and raise the biggest problems burdening the sharing economy: what if?

Collaborative consumption comes with a unique set of risks – this is where insurance comes in. The sharing economy is predicted to be worth $335bn by 2025. When reputable insurers partner with sharing platforms, it authenticates the marketplace and encourages involvement. The sharing economy allows certain opportunities: from pay-as-you-go cover and downloadable, on-demand insurance. It presents insurers with an exciting opportunity and has the power to fundamentally change insurance.

Motor and peer-to-peer

With motor, peer-to-peer platforms have tried to mitigate the risks of the sharing economy using features designed to benefit responsible renters. Peer-to-peer car sharing lets owners make money from their vehicles by renting them out. To overcome the inherent distrust with letting a stranger drive your vehicle, ratings systems have been implemented by some peer-to-peer platforms. These encourage the renters to behave responsibly when in the owner’s car.

From a financial perspective, many platforms make sure the renters have to pay an excess. For example, some platforms have a £750 excess – putting the renter at a financial disadvantage if they damage the vehicle.

Another option is telematics. These devices could be used to reduce any moral hazard by letting the owner monitor the driver’s behaviour and use it to determine the fee charged. If a cost was involved by the manner the vehicle is driven, telematics would ensure that responsible driving is firmly in the renter’s interest.

All in all, these mechanisms encourage the person renting the vehicle to act responsibly. It’s important to remember that as technology advances and the sharing economy booms, the industry must continue evolving and provide insurance solutions.

Home-sharing: the impact for brokers

According to a 2015 report by Pwc, Airbnb is estimated to be worth a staggering $13bn and is used by more than 50,000 renters a night.

This growth sector presents a huge opportunity for brokers. However, the insurance implications are complex and often misunderstood. Many homeowners don’t realise the unique risks when handing over their keys to paying strangers, especially when it comes to insurance and liability.

This could impact your clients in two ways. Homeowners generally aren’t covered for such things and if something were to happen, both renter and owner could suffer significant consequences. Most home policies cover the policyholder and family who live permanently at the property, but exclude third parties, which could lead to denied claims.

Home-sharing platforms usually offer a guarantee to cover damages. These aren’t comprehensive and customers often mistakenly believe this replaces their need for insurance. Homeowners may need additional insurance to cover paying guests.

Brokers should advise their customers on the risks of renting their home and ways they can protect themselves.