Last Updated 1/6/2020
Issue: The sharing economy involves individuals sharing goods and services with strangers, often through a third party's digital network. These third-party networks began to flourish around ten years ago, with an estimated 80 million Americans using a sharing economy service in 2020. Advances in technology, changes in consumer expectations and employment trends along with the internet and social media, has brought about this economic and cultural shift. Uber and Lyft (ridesharing) as well as Airbnb (accommodation-sharing) are among the most well-known and highest profile companies within the sharing economy but consumers are using digital networks to lend office space, parking spots, boats, bicycles, cameras and more. While the rapid growth of the sharing economy offers opportunities and challenges, there are some consumer insurance and regulatory issues that need to be carefully navigated. The primary concern for insurance regulators is identifying the liable party if something goes awry.
Overview: The sharing economy (or the gig economy) is a term used to describe a multitude of different companies that allow anyone to make money off of their own goods and services. Companies at the forefront of the sharing economy follow the same basic model: connecting strangers through a website or app to share goods or services. Smartphone apps allow people to conduct transactions anywhere with the convenience of their mobile phone, and online payment services offer quick compensation.
The sharing concept has always existed, but what distinguishes the modern sharing economy are digital platforms that easily match demand and supply. The ease and flexibility to conduct a trade anytime and anywhere from a smartphone has propelled the growth of this sector as well as cost-savings, entrepreneurship, and a community-like atmosphere. In addition, the concept of the sharing economy is appealing to individuals seeking to earn additional income from underutilized assets. A 2018 study by Deloitte reports that wealth and income are key determinants in people’s willingness to participate in the sharing economy. Across multiple countries, consumers aged 18-34 are the most open to participating in the sharing economy, likely due to their comfort with technology and need for affordable ways to access goods.
Transportation Network Companies (TNCs) such as Uber and Lyft are the most highly publicized companies under the sharing economy umbrella. TNCs connect individual drivers with people who need rides. Passengers and drivers can screen each other, and any payment for services occurs electronically. The primary insurance concern with TNCs is the potential gap in insurance coverage in the unfortunate event of an accident or injury. While every personal auto insurance policy differs, most contain exclusions when a person uses their vehicle for livery services. Several admitted insurers have developed products to fill gaps in coverage created by commercial ridesharing and the common use of livery exclusions in personal auto insurance.
The NAIC developed a white paper in 2015 to recommend strategies to resolve the potential gaps in coverage. Recommendations included state legislation requiring insurance to be carried by the TNC or the driver at all times, consumer disclosures regarding the potential for gaps in coverage and the need for new products to be offered by admitted insurers. In response to the white paper, Uber and Lyft worked with several key insurers and industry associations to develop their own model law. The model legislation became the basis of the National Council of Insurance Legislators model which has been used as the foundation for many new state laws.
Another popular type of sharing economy service is home or accommodation-sharing. Companies like Airbnb match travelers with locals interested in renting out a room, apartment or house on a temporary basis. Airbnb offers two forms of protection–the Host Guarantee and Host Protection Insurance (HPI)–free to all their hosts. Both forms offer liability coverage for Airbnb and its hosts as named insureds. The coverage also offers protection for landlords if the host rents the listed property and extends to homeowners’ associations for common areas associated with the listed property. When a lawsuit is taken against the host or landlord, this coverage protects the individual against claims of up to $1 million in bodily injury or property damage.
In December 2016, the NAIC adopted a white paper on insurance coverage issues in the sharing economy for home rentals. The white paper, Insurance Implications of Home-Sharing: Regulator Insights and Consumer Awareness, discusses various coverage options for homeowners, unit-owners, dwelling and renters policies. Limitations of each type of coverage are discussed as well as legal restrictions. The paper also focuses on the need for consumer outreach and education regarding these new services.
Other sharing economy services with potential insurance issues include goods-sharing and on-demand services. Goods-sharing is a smaller segment of the sharing economy that involves the lending of personal items for a fee on sites like Zilok or Neighborgoods. If the item malfunctions and results in injury to the operator there may be some liability risk to the owner. On-demand services like Task Rabbit and Zaarly connect freelancers willing to complete tasks like house cleaning, home repairs, or others with those who are unable or unwilling to do it themselves. Potential liability risks for these services include broken or stolen items, dog bites, or other personal injuries. Some incidents may be covered by the customers’ homeowners insurance, others may be covered by the sharing company, but fundamentally it is the consumers' responsibility to determine what is and is not covered when the company is cut out of the transaction.
InsurTechs are working to meet a great deal of demand by offering on-demand insurance for participants of the sharing economy. Slice Labs, Inc., for example, allows Airbnb hosts to turn insurance coverage on and off through their app. This service also helps fill gaps that the Airbnb’s HPI does not cover, including loss of income. Slice Labs also offers products for the ridesharing and cyber security markets.
Status: An NAIC Sharing Economy (C) Working Group was formed in 2014 and charged to study and make recommendations about regulatory issues related to the sharing economy. It also tracked consumer reports and bulletins published by the states and developed documentation on best practices for states to address insurance coverage issues related to the sharing economy. While the working group disbanded in early 2018, regulatory issues related to the sharing economy will continue to be addressed within the Innovation and Technology (EX) Task Force.
Committees Active on This Topic
Insurance Implications of Home-Sharing: Regulator Insights and Consumer Awareness
NAIC White Paper, December 2016
Transportation Network Company Insurance Principles for Legislators and Regulators
NAIC White Paper, March 2015
Consumer Alert - Navigating Home-Sharing Rentals
Media queries should be directed to the NAIC Communications Division at 816-783-8909 or email@example.com.
Jennifer Gardner, CPCU
Data Coordination and Statistical Analysis Manager