In the Sharing Economy, Who Shares the Risk?

Several economic and societal factors have fueled the growth of the sharing economy, in which people rent, borrow, share and swap items they might have purchased 10 or 20 years ago. But what is being overlooked in the rush to embrace this new way of consumerism are the risks to those on both sides of the transactions.

As more people turn their homes into hotels and their cars into cash, many are relinquishing some of their personal privacy while relying largely on trust to make deals with strangers they’ve met online. In this brave new world where laypeople – not business people – are making the deals, many owners and renters are not adequately considering or managing all the risks.

The safety nets that law, regulation and insurance provide will need to evolve to help mitigate the risks.

A recent survey by ORC International conducted on behalf of the Chubb Group of Insurance Companies shows that more than half of vacation homeowners would rent their homes to others for financial gain, and more than one-third of boat owners would rent out their boats. More than one-third (36 percent) of Americans would rent someone else’s home for vacation, but far fewer (20 percent) would rent out their own home to others.

There are inherent risks with sharing belongings when an unused home, boat or car is used for economic gain, including damage and personal injury. Although the chance of a serious incident may be slight, the financial consequences to the owner or renter can be devastating.

The Chubb survey revealed that people are at least aware of some of these risks. Survey respondents selected several fears that might prevent them from letting others rent their home: bedbugs as a parting gift from renters (73 percent); theft of silver, antiques or family heirlooms (70 percent); breakage of valuables (69 percent); and someone sleeping in their beds (56 percent).

Other significant fear factors included: renters leaving lit candles that could burn down the house (76 percent); renters throwing a wild party (75 percent); and someone getting hurt on their property (70 percent).

Most people renting out their vacation home will expect the usual wear and tear –a broken vase, a wine stain on the carpet, a clogged toilet. But if they want to protect themselves from exposures that could result in significant financial loss, they should speak with their insurance agents. Some risks may be covered by insurance and some may require an additional policy. For some exposures, there may be no coverage available.

New risk mitigation strategies are needed to tackle these emerging exposures. Businesses will be created to help manage the risks, and insurance coverages will evolve. Most importantly, those on both sides of these transactions – the owners and the renters – will need to take some personal responsibility by better defining the rules and helping to protect one another.