Sharing economy leaving many under-insured
The increasingly popular sharing economy is leaving many under-insured by existing policies. J Tim Query, holder of the Mountain States Insurance Group Endowed Chair, warned that a home sharer with a standard homeowners' policy, rather than a landlord policy, may not be covered if a boarder caused damage to the property. Similarly, car sharers without vehicle insurance need cover while renting another's automotive. Query said it was important people read their policy carefully to discover and resolve any coverage gaps.
House-sharing and car-sharing are two areas in what is broadly described as the “sharing economy.”

During this initial technology-driven transitional phase, the very real possibility exists that those participating in this area of the economy may experience coverage gaps within their insurance policies.

The Insurance Services Organization develops many insurance policy templates and is in the process of advancing coverage solutions to address the coverage gaps caused by the disruptive, but increasingly popular, sharing economy. They have already made changes to create clearer exclusions involving shared assets. For example, even though businesses advancing the concept of the shared economy commonly use the term “guest” for those using their services, ISO treats roomers and boarders differently than true guests.

For someone with a standard homeowners insurance policy, there is a risk that if you are renting out all or part of your house on a regular basis, your insurer may interpret this as a business arrangement, similar to a bed & breakfast or even a hotel. In that case, a standard homeowners policy would not provide coverage if a renter causes damage to the house. The owner of the house in this situation would need a landlord policy or a special endorsement to a standard homeowners policy.

Bodily injury liability is another major concern. While a standard homeowners policy provides coverage to visitors who are injured on the premises, someone paying a fee to rent the house for a few days may not be covered. In addition, property belonging to roomers, boarders and other tenants not related to an insured is excluded. Some policies exclude liability for what is categorized as a home business if the homeowner received more than $2,000 from the business in the prior year.

Perhaps the best-known “home-sharing” app is Airbnb. Airbnb provides Host Protection Insurance up to $1,000,000 through Lloyd’s of London. The Host Protection Insurance program provides primary liability coverage for up to $1 million per occurrence in the event of third party claims of bodily injury or property damage. This coverage is also subject to a $1 million cap per listing location, and certain conditions, limitations and exclusions may apply. Exclusions include intentional acts, such as assault and battery, sexual abuse, loss of earnings and others, that need to be reviewed by homeowners before entering into a sharing agreement.

Another addition to the sharing economy are car rental marketplaces such as Turo (formerly known as RelayRides). Companies like Turo operate a peer-to-peer car-sharing marketplace, allowing private car owners to rent out their vehicles. For a car renter who does not have automobile insurance, there are also important implications. Just as insurance coverage is needed to rent a car at the airport, they will need insurance coverage while renting someone else’s car.

Someone who owns a car and drives it for Uber, Lyft or another car-sharing enterprise has even more complicated insurance-related issues. A number of states have taken a three-phase approach to the potential property damage and bodily liability risk exposures to the driver. Using Uber as an example, phase one commences when the driver turns on the Uber app and is looking to pick up a fare. Phase two begins the moment the driver receives an invitation on the app to pick up the fare. Phase three occurs when the driver picks up a passenger and ends with the drop-off.

The Transportation Network Company Services Act (HB 168), signed by Gov. Susana Martinez earlier this year, sets up a two-tier insurance policy for drivers. While logged into the app, but not engaged in a pickup, the driver must carry an automobile liability insurance policy with coverage up to $100,000. However, that limit rises to $1 million once a passenger enters the vehicle.

Coverages can vary due to differences among insurance carriers in regards to their policy terms, conditions, exclusions and nuanced language. A current insurance commercial humorously infers that only lawyers read insurance policies and when the average insured reads the policy all it says is “blah blah blah.” However, it is important for all insureds interested in participating in the sharing economy as a commercial entity read their policy carefully. It is also recommended that they sit down with their agent to discuss coverage gaps and any options for getting those risks insured.

Executive’s desk

J. Tim Query

Tim Query is a professor of Risk Management and Insurance at New Mexico State University, and holds the Mountain States Insurance Group Endowed Chair.