Start-Up Challenges in the Sharing Economy
Published April 27, 2023
Sharing economy start-ups face range of uncertainties on path to credibility—and coverage
The sharing economy has transformed the American economy. Rideshare companies like Uber, home-sharing platforms like Airbnb, micro-mobility businesses like Lime, and freelancing services like TaskRabbit have fundamentally changed the way people live, work, and play. Critically, these services have provided new sources of income for millions of citizens. The basis of the sharing economy is using underutilized resources, such as cars, houses, scooters, and even free time, to generate income.
Enter one of the biggest challenges in the entire insurance industry—how to insure a business model that didn’t exist five years ago. Here are just a handful of the challenges underwriters and brokers face when working to adequately insure a sharing economy start-up:
The sharing economy presents new challenges for underwriters from a liability perspective. Who is liable when a claim is filed? Is it the platform (often an app)? Is it the service provider? Is it the user? Consider Uber. When an accident occurs, is Uber or the driver liable for the damage done to the vehicle, or worse, injuries to a passenger? It is critical for all parties to understand what coverage is in place, policy limits, and how the language classifies vehicle operators, among other criteria.
Constant innovation means economy industries are always ahead of regulators. Lack of clear regulatory guardrails can be confusing for businesses trying to expand across state lines or even national borders. Regulatory frameworks will shift regionally and nationally as no federal framework has been established, which makes it hard for sharing economy businesses to understand and maintain compliance. Evolving regulations also make it difficult for underwriters to craft policies that address the full range of issues impacting clients operating in multiple jurisdictions. Insurers can also be deterred from even offering policies under this uncertainty, knowing they will be fraught with novel complexities.
It can be hard for insureds to find or even understand how to find policies that provide adequate coverage. In a rideshare example, there may be different coverage and liability depending on whether the car owner is carrying a passenger, driving without a passenger, driving off the clock, or not driving. Coverage may not be broad enough to cover all of the scenarios that occur in a rideshare service, but policies may also have insufficient limits. Imagine a service like Vrbo leasing out a multi-million dollar home. If property damage occurs, is the homeowner sufficiently indemnified against major repairs or reconstruction?
What risk models does an underwriter use to frame coverage when there are none? Conventional models aren’t generally fit to forecast risk in an entirely different mode of service like that of many sharing economy businesses, potentially leading to improperly priced premiums and potentially prohibitive costs for start-ups. One of the greatest challenges for sharing economy companies is data management. Apps that track the most granular data can be difficult to manage, segment, and distill, particularly in an effort to establish benchmarks for coverage.
Collaboration between underwriting and sharing economy businesses can be fruitful. Both sides can work together to analyze the data lakes aggregated by platforms to better grasp the risks inherent in a novel service model and in turn develop reliable risk models. In time, clearer regulatory frameworks will also emerge to police emerging industries, which will also greatly enhance risk assessments and subsequent policy menus.
That said, we’re not there yet. Uncertainty is rife in the sharing economy when it comes to party liability, regulation, coverage profiles, and inadequate underwriting models. Sharing economy start-ups need the guidance of seasoned risk management counsel with experience and expertise in the sharing economy—which is an insurance market unlike any other.