Risk and the sharing economy: What insureds should know
Keep these five tips in mind as you help clients navigate the insurance implications of using their personal homes or vehicles for profit.
It’s been a decade since TIME magazine identified the sharing economy as one of its “10 Ideas That Will Change the World.” Looking back, the authors were pretty spot on with their prediction.
The sharing economy is here to stay. It’s important for brokers and agents to keep abreast of its many parts and the unique exposures that it presents to clients. It’s also vital to effectively review current coverage available, explain any potential coverage gaps, and advise clients how best to protect themselves.
Below are five key items to keep in mind as you help your clients navigate the insurance implications of using their personal homes or vehicles for profit.
No. 1: Ask a simple question.
Always ask your personal lines clients if they currently use their homes or automobiles for sharing purposes, or if they have any intention to do so in the future. This conversation should take place during your initial discussions with your clients and again prior to renewal when you’re engaging your client to identify any potential changes in exposure from the past year. This is a quick and easy question to ask, and given the growing number of individuals who are engaged in these activities, it should be part of your due diligence process. Many individuals do not realize that these activities are widely recognized as a business exposure and that they will have coverage implications on their personal insurance policies.
Even if your client has no intention of renting out their property at the moment, if they do decide to become a host property owner or driver in the future, the fact that you once asked them may prompt them to call you prior to joining one of these services.
No. 2: Explain potential coverage gaps.
The majority of sharing economy service companies offer some form of insurance to hosts and drivers. However, coverage varies widely by company and often leaves the participant with large coverage gaps. One home-sharing service currently offers $1 million of liability coverage but no property coverage; another offers limited protection to the host’s property but has a number of restrictions; and another only provides guidance on insurance coverage but no actual coverage.
For ride-sharing drivers, there are a number of unique situations to navigate: What coverage exists when the insured has the service’s app turned on and is waiting for a fare, versus when they have a customer in the car, versus when they are en route to pick up a customer. There are additional considerations, such as higher deductibles and claims servicing issues that should be explained to the insured.
Equally important is a review of the coverage and restrictions provided by the customer’s personal auto and homeowners’ policies. Is their property covered by an unendorsed HO-3 policy? If so, you’ll likely need to discuss coverage gaps that arise from rental exposures in regards to the policy’s business exclusion, theft coverage applicable to properties held for rent, and others. Many insurance carriers apply their own policy forms that are tailored to their appetite for these exposures. Company-specific forms must be reviewed for exclusions and coverage limitations that can lead to coverage gaps or completely exclude exposures created by these activities.
No. 3: Stay current on new industry forms.
As the sharing economy has developed, the insurance industry has responded in kind. Many carriers have introduced their own policy wording tailored to their individual appetites. The industry standard for policy forms, the Insurance Services Office (ISO), has responded by creating a number of endorsements to address both home sharing and ride-sharing.
When discussing coverage with your client, you need to understand and convey what impact the policy wording of these various company and ISO forms has on the coverage provided. Some of these endorsements restrict coverage; others expand or carve back coverage, and still, others exclude these exposures altogether.
No. 4: Use actual claim examples.
If your insured plans on becoming a host or driver, be ready to explain how the coverage provided by the selected service, paired with their personal insurance policy, might respond to certain scenarios. Prepare some high-level examples to walk them through the available coverage, such as:
- What if your client’s home-sharing renter is throwing a bachelor party and the insured returns to damaged walls and water damage from a broken toilet?
- If the property is a condo, what if their renter damages any association common areas?
- What if the tenant’s personal property is damaged during their stay?
- What if an occupant is injured during their stay or, if ride-sharing, during the course of the trip?
While it is impossible to address every potential claim scenario, it’s wise to run through several to highlight any gaps in coverage and better understand any additional coverage you are suggesting.
No. 5: Understand local ordinances.
Many cities and counties have passed legislation to regulate and/or license the multiple aspects of the sharing economy, and it’s important to be aware of these local ordinances in your sales area.
Several of these regulations apply mandates to the type and limits of insurance that the host or driver must maintain. In San Francisco, hosts must maintain at least $500,000 of liability coverage, while in Virginia Beach, Va., they need a minimum of $1 million. Not having a firm grasp on these local ordinances leaves the door open to selling your insured limits that are too low.
Brian Foley (Brian_Foley@rpsins.com) is vice president and National Personal Lines Practice leader for Risk Placement Services.
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