Insurance Implications for the New Sharing Economy
Whether you love the idea, hate it or find yourself safely planted in "wait-and-see" mode, trends suggest the new sharing economy is now an established segment of the U.S. small business population. In fact, Forbes1 estimates in 2014, the equivalent revenue flowing directly into sharers' wallets will surpass $3.5 billion, a growth rate of more than 25 percent. And the share-conomics extends beyond popular peer-to-peer ride and room rentals like Uber®, Lyft® and Airbnb®. Entrepreneurs are using technology-enabled intermediaries to lend office space, parking spots, boats, bicycles, cameras and more, to complete strangers.
While joining this "collaborative consumption" revolution may sound like an easy way to make extra money off your home, car or other personal possessions, to keep yourself and your business safe, it's important to fully understand the insurance implications of such transactions.
Transportation Network Companies (TNCs) such as Uber and Lyft connect individual drivers will people who need rides. Passengers and drivers can screen each other, and any payment for services occurs electronically. Note that most standard auto insurance policies specifically exclude rental of your personal vehicle to others and do not provide adequate protection to you if you decide to pick up passengers for a fee. And some states have no-fault medical coverage that follows the vehicle, not the driver – the auto policy covering the car must respond first. In many states, TNCs are no subject to the same licensing and insurance regulations as to taxis or limousines. Before you sign up, make sure the TNC has commercial vehicle insurance that covers bodily injury and property damage to you and others.
Peer-to-peer (P2P) rentals, match travelers with locals interested in renting out a room, apartment or house on a temporary basis. Whether renting a room or an entire house, be sure to review your existing homeowners' or renters' insurance policy. While some policies cover casual renters or boarders, others include exclusions for renting out your property. Larger P2P companies like Airbnb offer what they call "host protection insurance." These plans typically are designed to offer supplemental or secondary coverage after a claim is filed with the sharer's personal insurance provider.
Goods and Services, a smaller segment of the sharing economy, involves the lending of personal items for a fee. The process is simple. Someone needs a high-end item like a camera, bicycle or golf clubs, but only for one-time use. The interested party registers on sites like Zilok or Neighborgoods, enters into a contract and pays a fee to reserve the item of choice. Lender and borrower meet at a safe spot where they complete the transaction. Most sites recommend lenders require a security deposit, as the platform typically states they are not liable for losses or damages. Your homeowners policy probably will not cover you either.
Sharing Economy Tips and Considerations
- For insurance purposes, once you begin earning income from renting out personal property, you're probably considered a home-based business. Make sure you understand all relevant legal and regulatory requirements.
- Before sharing a vehicle or residence, make sure auto and homeowners' insurance policies provide the protection you need.
- When lending goods and services, be sure to set a security deposit that is sufficient to cover losses. Capture photos and other information about your property in a home inventory. Be mindful that for some items, you may not be able to locate an exact replacement.
- Take advantage of the sharing platform's screening, verification and ratings tools. And don't be shy about monitoring a potential borrower's Facebook and Twitter profiles.
In the end, entrepreneurs thinking about a sharing-economy new business venture should contact their state insurance commissioner.