Insuring the Sharing Economy

50 CLAIMS I SHARING ECONOMY INSURING THE SHARING ECONOMY Where did the sharing economy, aka ‘collaborative consumerism’, come from and what is its appeal? How does it function and, most importantly, what are its implications for insurance? Raj Kanhai BEc/LLB, LLM, Senior Consultant with Finity Consulting, explains all. WHAT IS THE SHARING These rentals are typically for short WHY THE SHARING ECONOMY ECONOMY? periods and the rate is determined by IS GROWING The sharing economy has been very distance travelled or duration. There has The sharing economy is based upon much in the news as of late. This type of been a proliferation of these services in the notion that people need access collaborative consumerism differs from large metropolitan centres, where to goods and services rather than traditional commerce by allowing access consumers benefit from having 24/7 ownership of assets. For example, on through the use of other people’s goods access to cars on an as-needs basis average cars are driven for less than and services rather than the ownership of without the downsides of car ownership, two hours per day and the average assets. Much of the talk has been about particularly the high relative cost. running cost of a car is typically about the recent sharing economy superstars. $650 per month. But a GoGet car share However, collaborative consumerism is GROWTH IN THE SHARING membership might set a person back as old as commerce itself. Just think of ECONOMY only $350 per month if a car is driven the barter system. The sharing economy is growing three to four times per week. Over the last decade or so, however, rapidly and was valued at AU$15 billion In addition to being cheaper for the innovative technologies have facilitated globally in 2014.1 Perhaps the most consumer, collaborative consumerism greater access to goods and services sensational story is that of Uber, is also ‘greener’. For instance, there is and enabled sharing via user-friendly which saw its value rise this year to research to suggest that for every shared platforms. This has led to tremendous AU$50 billion since starting in 2010, car there are nine to 13 fewer cars on growth in certain segments of the sharing reflecting its aggressive global the road.6 This lowers the demand for economy and meant the disruption of expansion into more than 300 cities, valuable car spaces, especially in the CBD, entrenched industries such as hotel ferrying millions of riders daily.2 and is a better use of resources. More accommodation and taxi services. Similarly Airbnb, founded in 2008, efficient usage of dormant capacity is has grown exponentially to over one also a factor in home sharing – especially TYPICAL ‘SHARED’ GOODS million homes in 34,000 cities and when one bears in mind that there are AND SERVICES 190 countries and was recently valued nine million ‘spare’ rooms in Australia.7 Some of the more common types at AU$25 billion.3 Some commentators A fundamental reason why of collaborative consumerism have pointed to such figures when collaborative consumerism is growing are car sharing, ride sharing and arguing that there is a social revolution is that innovative technologies have accommodation (home/room sharing). taking place. Interestingly, Uber does dramatically reduced transaction costs. Ride sharing (such as UberX) is a not own cars, nor does Airbnb own Furthermore, ‘internet reputation service that arranges, typically via a any rooms. But they are respectively systems’, such as the use of star ratings smartphone app, for a one-time shared the largest providers of rides and and online feedback, solve two key Raj Kanhai ride on short notice. It links drivers, who accommodation on the planet. potential problems – coordination and can be either professional or non- In Australia, Airbnb listings doubled to trust between strangers. Raj is a Senior professional, to passengers and is an 40,000 in the 12 months to May 2015, Consultant at alternative to taxi or limousine services. with both Sydney and Melbourne being ISSUES CONFRONTING THE Finity Consulting, On the other hand, car sharing is a in the top 10 cities listed globally.4 Since SHARING ECONOMY in Sydney. type of car rental that can be accessed launching in April 2014, Uber reportedly There are numerous regulatory, taxation through a company (such as GoGet) has more than one million Australians and risk-management challenges or peer to peer (such as Car Next Door). who have signed up to use the platform.5 besetting the sharing economy. The Journal I Issue 04 2015 I anziif.com SHARING ECONOMY I CLAIMS 51 most well-known example is UberX, However, interesting questions arise Lloyds syndicate. Other providers, which uses private cars to provide as to whether a claim should be covered such as Peers, provide gap cover for taxi-like services and is technically illegal in any circumstances. Should it make a home-sharing liability. in most Australian jurisdictions (a difference if the accident occurred when Some underwriters in Australia provide notable exception being the ACT). the driver was carrying a fare-paying insurance coverage for ride sharing. Uber Drivers have been fined by various passenger or was in between jobs or is on record with respect to contingent state regulators, although Uber has been when the Uber app was switched off? coverage ‘backed by a commercial paying these on their behalf, to date. Further, if someone uses Airbnb to auto liability insurance policy up to Regulation is clearly failing to keep apace. rent their home for a short period, does US$5 million per accident that covers Uber has argued that its service benefits a standard home and contents policy the driver’s liability for property damage consumers and provides employment for cover any accidental or malicious or bodily injury caused by the driver’.8 accredited drivers. The taxi industry, on the damage that may be caused by a guest? other hand, has vehemently opposed this THREATS AND OPPORTUNITIES service on the basis that there is no level Such examples point to fundamental FOR THE INSURANCE INDUSTRY playing field in relation to regulation and insurance issues: The growth in the sharing economy licensing requirements. ■ Is there an increase in the risk that presents a mixed bag for the insurance With regard to home sharing, underwriters should be aware of? industry. The shift from owned assets one of the key issues is whether the ■ How do we price that risk, particularly to shared assets will reduce the demand arrangement is regulated and compliant, where there is limited data? for insurance somewhat. References: 1 Benita Matofska, especially with local government laws. ■ Do obvious gaps in insurance coverage As the industry obtains more data What We Know About The create opportunities for insurers with about changes in risk created by home Global Sharing Economy, March 2015. 2 Wall Street Journal, 31 INSURANCE IMPLICATIONS respect to new/modified products? or car sharing, it will become better July 2015. 3 PrivCo – Airbnb, Both ride and home sharing face at servicing the sharing economy by reported in CNN, 27 June 2015. issues regarding insurance coverage INSURANCE RESPONSE creating new and innovative products 4 Australian Financial Review, 29 May 2015. 5 The Australian, and exclusions, including questions Both Airbnb and Uber have responded and filling any insurance gaps. Business Review, 10 August of legality and disclosure. For example, to some high-profile cases by providing The strict dichotomy between 2015. 6 Martin, Shaheen and Lidicker, Impact of Carsharing an UberX driver may find they are limited insurance coverage. personal and commercial risks may on Household Vehicle Holdings, not covered for third party or Airbnb has a Host Guarantee Scheme therefore blend into more of a hybrid 2010. 7 Australian Bureau of Statistics, Census of Population comprehensive property damage if the of up to A$1 million for damage based upon how assets are used in and Housing, 2011. 8 Sydney vehicle is only insured for private use. to property, underwritten by a this new collaborative landscape. Morning Herald, 23 June 2015. Journal I Issue 04 2015 I anziif.com.

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