The home sharing economy has brought about a new model for accommodation provision. Through online platforms, people who have a place to stay are connected to those who are willing to pay for a place to stay. Home sharing sites like Airbnb, VRBO and HomeAway have been experiencing exponential growth in recent years and are projected to continue growing. This is due to consumers gradually overcoming their fear to interact and directly exchange goods and services with strangers based on peer trust. This comes at a time where technology has reduced transaction costs, making sharing assets much cheaper and easier than ever before. Often times, it can be a lot less expensive to rent out a room in someone’s home for the night than to book a hotel room.
However, there is a potential issue from a Host standpoint. The lines between personal and commercial use are blurred in the sharing economy. Hosts are renting out their homes for money and exposing themselves to a wide variety of risks by allowing a stranger to live in their home. From an insurance perspective, Hosts are using their personal property for commercial use. Therefore any losses would not be covered under their standard insurance policy. Some home sharing platforms have commercial insurance provided to the entire platform at no additional cost, but the Hosts are not the named insured and have no policy rights. Ultimately, there is no contractual obligation from the insurer to the Host, so they are at the discretion of the home sharing site. It is common for Hosts to be compensated only partially or not at all for losses from these platforms.
These home sharing sites make it clear that they are not in the business of providing insurance and do not want to be. However, insurance carriers are reluctant to write products that will allow for short-term rentals because there are too many risks and unknowns. This is pushing insurance carriers to rethink their business models, operations and technology strategies to remain responsive to their customers and continue to see revenue growth. However, carriers are facing a number of challenges. Underwriting this type of risk is difficult because the risk assessment for each transaction is different, as property and hosts vary. Carriers are struggling with pricing uncertainty because there is no current loss data to create a pricing model that would accurately reflect the risks within the sharing economy. Overall, carriers will have to adopt a completely different operating model that weighs the risk, cost and benefit of providing the much needed insurance coverage for the booming home sharing economy.