As the sharing economy continues to expand, so does the attention it receives. While there was a time when the sharing economy was considered simply a small, feel-good movement driven by idealists, that perception has changed. Today, this booming market is getting close scrutiny from entrenched businesses and regulators.
Sharing economy may be threatened
Although car rental companies have embraced and even become involved in the car-sharing market, the same cannot always be said for other traditional businesses now competing with the sharing economy. Taxi drivers, for example, have lobbied against ride-sharing services such as Lyft, Sidecar and Uber. In San Francisco, taxi medallions cost on average $250,000 and there is a waiting list of over 1,400 people to become a cab driver. The taxi industry often sees sharing economy companies as undermining its investments and cutting into its businesses.
Both the car-sharing and home-sharing industries have run up against insurance issues. Perhaps the most well known are the damages that have occurred in homes rented through Airbnb. While the company now provides a $1 million “Host Guarantee” to protect against damages caused by a guest, it does not offer liability insurance. This leaves hosts at risk should guests injure themselves during their stay.
Regulators take over
Several cities, including New York, Hamburg and Seoul, have proposed laws to prevent mini-hotels from being established in residential areas. New York passed a law banning residents from renting out their homes for less than 30 days at a time. In 2012, New York issued over 2,000 citations with fines averaging $2,400. This year, repeat offenders could receive fines of up to $25,000. San Francisco, which expects to collect $191 million in hotel taxes this year, has insisted that Airbnb take responsibility for collecting the taxes.
Collaborative solutions emerge
As a result of increasing regulations, many sharing economy companies, along with grassroots advocacy group Peers, have begun working with legislatures around the world. The goal is to create regulations and taxation models that fit the unique needs of the sharing economy.
In my last blog series, I mentioned that California, Oregon and Washington have ruled that: 1) a car owner using a car-sharing site does not have to procure commercial insurance; and 2) the car-sharing company’s insurance assumes all liability while the car is being rented. Further, the rulings state that insureds cannot be dropped or denied renewal on the basis of their car-sharing activities.
The biggest development in modifying regulations for the sharing economy has occurred recently. Through a concentrated lobbying campaign, ride-sharing companies, such as Lyft and Uber, convinced California’s Public Utility Commission (PUC) to create a new category of transportation for ride-sharing services. These “transportation network companies” can now legally operate throughout California by meeting 28 insurance and safety requirements. The ruling represents a huge win for the sharing economy and could serve as a model for regulators worldwide.
The PUC work should serve not only as a model, but also as an example of how government and sharing economy stakeholders can work together to develop new rules for sharing economy businesses, which often blur personal and commercial endeavors.
Insurers as leaders
So, what can insurance companies do with this information? How can they capitalize on emerging business models and developing regulations? The best recommendation I can give is to become leaders in this space.
Insurers are uniquely qualified to help lead the development of the sharing economy because:
- Insurers are experts in understanding businesses, the risks they pose and how to reduce those risks.
- Insurers excel at using advanced analytics to create a unique and comprehensive view of owners and renters.
- Insurers have a proven ability to work with regulators to forge new models and rules.
- Insurers have extensive knowledge of commercial and personal lines and are most knowledgeable about how those can be blended together.
The sharing economy participants and those affected by it are taking a collaborative approach to carving out solutions for everything from keeping neighbors happy, to regulation, to insurance. It’s time for insurers to join this effort to educate, consult and guide the evolution of this dynamic new economy.