Underwriting Questions in the Sharing Economy

Here at Insurance Journal’s Academy of Insurance, the idea of the sharing economy has been a front burner item lately. This week’s webinar is the third (and last) this year on the subject and the second in three weeks. You can see why we’re thinking about it so much lately. That makes me dust off my underwriting hat, put it on, and think about what I would want to know if I received an application with possible sharing exposures.

Thinking about this topic, I had to broaden my thoughts about sharing. Of course, we’re talking about home-sharing and ride-sharing, but the question that came to mind was “What else could qualify as a sharing exposure?” That goes to what we use as a definition of sharing economy. We immediately think about ride-sharing and home-sharing services. However, depending on your definition, you could include online marketplaces where people sell the stuff in their closet or on their craft table. That makes me think about other services like Letgo or Craigslist. What if the sharing economy creates significant exposures for the customer? Let’s be clear before we go any further. We aren’t talking about incidental exposures here. We are talking about receiving an application that lets us know that the applicant is really involved with some form of the sharing economy. Here are some questions that the underwriter in me started to ask of our fictional applicant.

What apps or sites are you sharing through? Hopefully our fictitious application has already told us this. This seems like the jumping off point that caused us to ask more questions. This is how we start to focus our underwriting investigation on the most important questions that will add the most value. Maybe once we’ve looked at the application we ask instead, what other apps or sites are you using to share? We are trying to learn just how wide the exposure is. If the applicant only uses a ride-sharing app, the exposure is limited to the ride-sharing exposures. On the other hand, if the applicant is using a ride-sharing app, a home-sharing app, and a meal-sharing app (yes, this appears to be a thing) the exposure just changed significantly and so did my list of questions.

What personal property do they keep at home that may qualify as business related property? A homeowners’ policy is likely going to place limitations on business personal property in the home. This is not likely an issue with a ride-sharing service, but what about that home-sharing service? Some homeowners’ policies are going to exclude that personal property that is used in rental spaces. The applicant may be someone that is developing an online store for items that they buy at a good price and sell at a big markup, or items that they make themselves at home. All of that property could create a significant uninsured exposure that an underwriter may make note of and exclude if they can. Consider someone that shops the clearance racks in all of the popular clothing stores to resell online. They may have just paid $200 for clothing that retails close to $800. What are they worth? What can they sell for? Can they even be insured on a homeowners’ policy? Maybe that number doesn’t scare you. What if they just went out and spent ten times that amount ($2,000)? That increases the (potentially) uninsured exposure. If they are making a significant income this way, it is realistic to think that they are moving property in and out so quickly that they may not be able to accurately tell what they have at any time.

How often do they make their car or home available for sharing? It’s one thing when the applicant indicates that their home is available only three weekends/year because there are only three big football games in town most years. It’s another thing when they indicate that the home is available for five months out of the year and that whenever their car is moving, it’s online and ready for a rider. This question leads into the next question.

How many rides do they give in a month (or how many nights do people stay in their house)? There is a difference between being available for sharing and actually sharing. The available means that there is a possibility of the sharing exposure, but the actual number of rides or nights shared tell us how often the exposure is real. There is a part B to this question. How many people? How many people are in your car with you? How many people come to your house? For the latter question, the applicant may not even know how many people come with each rental. They may only know the maximum number of people that their listing shows.

Those were just the first few questions that popped into my mind when I thought about this exposure. If you’ve faced this exposure, we would really like to hear from you. Comment below and let us know what questions you have when you identify a sharing exposure.