The Sharing Economy and Insurance

The shift in a changing culture towards trust and collaboration between strangers… and how does this impact on how we insure against risk and liability when most of the services offered aren’t even registered?

The sharing economy reminds us of the Australian ads that promote the good old Aussie ‘beer economy’, only that’s usually between mates!  This new trend that has been adopted world-wide is building and gathering momentum, with an estimated sum to the value of AU$15 billion globally in 2014.  The key difference here is that the sharing economy is between strangers.

So what is the sharing economy?

The most prominent examples that are often cited are Uber ride sharing and Airbnb.  The Uber services offer a one-time shared ride on short notice using a smartphone app. Airbnb is an online community marketplace that connects people looking to rent their homes with people who are looking for accommodation, usually for travellers/holiday makers.

To give you an idea of just how much the sharing economy is growing, using the two examples above: Airbnb was founded in 2008 and has grown to over one million homes in 34,000 cities and 190 countries, valued at AU$25billion.  Uber started in 2010 and has expanded into more than 300 cities with millions of riders every day.

Interestingly, neither Uber nor Airbnb actually own any homes or cars, but they are both the largest providers of cars and accommodation in the world.

When you look at the costs involved in ownership and the actual usage by individuals compared to using the sharing economy, it’s obvious why people would choose the latter.  Not only does it cut costs substantially, it is a ‘greener’ and more efficient solution to meeting people’s needs.

Insurance Risks

With these unregulated services come higher risks of property damage and issues with insurance coverage.

For example, an Uber driver may find that they are not covered for third party or comprehensive property damage if the vehicle is only insured for private use.  If someone uses Airbnb to rent their home for a time, does a standard home and contents policy cover any accidental or malicious damage caused by a guest?

These examples point us to fundamental insurance issues:

  1. Is there an increase in the risk that an insurer should be aware of?
  2. How do they price the risk, particularly where there is limited data?
  3. Do unintended gaps in insurance coverage create uninsured exposures for people?

Keep informed

The growth in the sharing economy and the shift from owned assets to shared assets may in fact reduce the need for insurance in certain circumstances. However, with change, comes new risks which the insurance industry will need to respond to as the industry obtains more data about new exposures created by home or car sharing.

If you’re considering changing the way you currently use an asset, remember to always check in with your Oxley Insurance Broker.


Source: ANZIF: Insuring the Sharing Economy