Last Updated 12/13/18
Issue: The so called "sharing economy" involves individuals sharing goods and services with strangers, often through a third party's digital network. The idea of sharing has thrived and expanded tremendously over the past few years and is becoming an everyday feature in modern society. According to a 2016 Pew Research Center study, 72% of American consumers participate in some form of sharing economy activity. Data from Statista forecasts that adults in the sharing economy will reach 86.5 million participants by 2021. Advances in technology, changes in consumer expectations, along with the internet and social media, has brought about this economic and cultural shift. Uber and Lyft (ride-sharing) as well as Airbnb (accommodation-sharing) are among the most well-known and highest profile companies within the sharing economy. However, the sharing economy extends well beyond sharing homes and cars–entrepreneurs 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 and regulatory issues that need to be carefully navigated. The primary concern for insurance regulators is; who is liable if something goes awry, the individual providing the good or service or the company who made the match?
Overview: The sharing economy–also referenced to as the gig economy, trust economy, peer-to-peer economy, demand economy or collaborate consumption–is a term used to describe a multitude of different companies that offer a variety of services. The basic concept is that anyone can make money off of their own goods and services. Companies at the forefront of the sharing economy follow the same basic model: strangers share goods or services, connecting through a website or an online application that is facilitated by a third party business. 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 distinguish the modern sharing economy are digital platforms that easily match demand and supply. This ease and flexibility to conduct a trade anytime and anywhere from a smartphone has propelled the growth of the sharing economy. Cost-savings, entrepreneurship, and a community-like atmosphere are also factors pushing adoption of the sharing economy forward. For example, home sharing services are beneficial to travelers looking for more affordable options. 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, millennials 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 over the potential gaps 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. TNCs only offer limited liability coverage while the driver has the application on but has not yet been matched with a passenger through the application. This creates a gap in coverage. The driver may be driving around looking for matches, they may even have multiple TNC applications on simultaneously, but their coverage would be limited to the highest liability limit offered by the TNCs for which they are driving. Several admitted insurers have developed products to fill gaps in coverage created by commercial ride-sharing and the common use of livery exclusions in personal auto insurance.
The NAIC developed a white paper in 2016 to recommend strategies to resolve the potential gaps in coverage. Recommendations include 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 labeled, TNC Insurance Compromise Model Bill, became the basis of the National Council of Insurance Legislators model which has been used as the foundation for many new state laws.
Car sharing is another spin on sharing transportation. Car sharing companies match car owners willing to rent their vehicle to a stranger with those seeking cars for rent. Many car sharing companies are owned by large car rental companies. Flexicar is owned by Hertz and Zipcar is owned by Avis. Car sharing companies often offer insurance coverage while the vehicle is being rented. This concept presents less opportunity for coverage gaps because the vehicle is either being used as a rental or it's not.
Other types of companies popular within the sharing economy include home or accommodation-sharing. These companies match travelers with locals interested in renting out a room, apartment or house on a temporary basis. More and more people are using home-sharing companies to find vacation housing as well as rent out their homes. The most popular are Airbnb and HomeAway. Airbnb offers apartments or houses on a temporary basis. Airbnb offers two forms of protection–the Host Guarantee and Host Protection Insurance (HPI)–free to all of their hosts. Both forms offer liability coverage for Airbnb and its hosts as named insureds. The overage also offers protection for landlords if the host rents the listed property and extends to home owners 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. Airbnb does not provide injury to reputation coverage such as claims of libel or slander.
Goods-sharing is a smaller segment of the sharing economy that involves the lending of personal items for a fee. 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. If the item malfunctions and results in injury to the operator there may be some liability risk to the owner if they knew or should have known that the item was defective and could result in injury. 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.
On demand services like Task Rabbit and Zaarly connect freelancers willing to complete chores with those who are unable or unwilling to do it themselves. These services could be likened to typical household cleaning services like Merry Maids or contractor services like plumbers and electricians. The major difference is the company backing the people performing the work. If the sharing company presents itself simply as a match-making service then who is providing the insurance if the person cleaning your home breaks something, trips and falls, gets bitten by your dog or steals from you? Some incidents may be covered by your homeowners insurance, others may be covered by the sharing company, but the reoccurring theme in the sharing economy is that it becomes the consumers' responsibility to figure out 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 is also considering expanding into the ridesharing and cyber security market. The latter of which has shown to be a worldwide issue as users of various sharing platforms have been hacked while attempting to participate in the economy.
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
Auto Insurance Basics for Ridesharing Drivers
United Policyholders, 2015
Consumer Alert - Navigating Home-Sharing Rentals
NAIC Adopts Home-Sharing White Paper
NAIC Adopts Ride-Sharing White Paper
Media queries should be directed to the NAIC Communications Division at 816-783-8909 or firstname.lastname@example.org.
Jennifer Gardner, CPCU
Research & Actuarial Manager