10.3 - The Sharing Economy Flashcards
Describe the sharing economy and its impact on insurance liability
Definition - “Sharing economy”
A collaborative system where participants share access to services and products rather than owning them individually; generally facilitated through an online platform
Sharing Economy Explained
-according to a report by PricewaterhouseCoopers, the global sharing economy is expected to grow from $15 billion USD in 2015 to $335 billion USD by 2025
-Entrepreneurs began developing digital platforms and applications (apps) to make connecting and sharing convenient, simple and secure
-these early pioneers are now some of the largest companies in the global transportation and hospitality sectors
-Uber is one of the most widely used ridesharing services and is available through the Uber app
-Uber was established in 2010 and in 2022 announced gross bookings of $25.9 billion for 4th qtr of 2021
-under the sharing economy, the following types of products are commonly shared:
> automobile and transportation sharing
> accommodation sharing
> household items sharing
-vehicle owners who rent out their vehicle, or drive passengers, or rent out a spare room or entire dwelling for STR, and rent out items not currently using such as bicycles, power tools, gardening equipment and more
Definition - “ridesharing”
An arrangement set up by means of a website or mobile app in which a passenger travels in a private vehicle driven by its owner, for free or for a fee
Definition - “carsharing”
An arrangement set up by means of a website or mobile app that links renters and car owners. Sometimes called vehicle sharing or peer-to-peer car rental services
Automobile and Transportation Sharing
-people choosing not to own cars due to costs and urban area difficulties - parking, living close to work not needing a care, taking public transit
-loaning vehicles or giving rides to other people comes with risk, some of which can be covered by insurance
-while initially there were few insurance options for clients driving for ridesharing companies, new and innovative coverage solutions are becoming available to meet market needs
-although Canadian auto insurance varies by prov. and terr., the versions of the owner’s policy used in the various Canadian jurisdictions generally exclude using personal vehicles for commercial purposes, including carrying passengers for a fee
-this means car owners and drivers involved in a collision while using the car for ridesharing can be left with no coverage for damage to the vehicle, and potentially, no coverage at all
-depending on the jurisdiction, exclusions can apply to some or all of the following:
> TP liability claims for bodily injury and property damage
> own vehicle damage claims
> accident benefits or personal injury claims
-there are differences between commercial and business use
-for example, real estate agents may drive clients to view listed homes, but their business is selling homes. They use their cars, but they can do their business without it. On the other hand, the business of couriers is driving packages from A to B, so there is no business without the vehicle, which makes it commercial use
The case of Ridesharing
Ridesharing summarized:
-ridesharing apps (Uber, Lyft and others) link registered vehicle owners with riders
-the apps provide users the option of selecting from various types of specialty vehicles
-vehicle owners register with the ridesharing app as independent drivers or “partners”
-driver partners set their own hours and driver as often or as seldom as they wish
-riders post their trip requests on the app, including rider details and pick-up and drop-off locations
-drivers access the app to select ride requests
-once the ride is complete, the rider’s credit card is billed by the app. In most cities, no cash is exchanged
-ridesharing app operators pay their drivers based on completed fares and deduct a service fee for providing the app
-there is no question that a ridesharing driver is in breach of policy conditions while carrying a paying passenger, but how about when the driver is on the way to pick up the passenger?
-since driving to the pick-up location is a necessary part of the commercial transaction, the exclusion related to commercial use will likely apply during this period as well
-Provincial legislators have generally agreed that there are 3 distinct commercial activities during the ridesharing process
-the owner’s policy provides coverage while the driver is not logged into the app, however, once the driver is logged into the app, the owner’s policy is invalid during each of these 3 periods:
> 1. While the driver is accessing the rideshare app in the vehicle, but has not yet selected a ride
> 2. After a ride is accepted and while the driver is on the way to pick up the passenger
> 3. While carrying the passenger from pick-up to drop-off
Definition - “transportation network”
An online-enabled application or website used by persons to prearrange the transportation of passengers for compensation by a transportation network driver. Also called ridesharing services
Insurance for Ridesharing Drivers
-in ON, regulations refer to the use of private vehicles for hire that use an online-enabled app or system as “ridesharing services”
-other jurisdictions describe such services as transportation network companies (TNCs)
-commercial vehicles, such as taxis and buses, are typically insured under a standard owner’s policy with the addition of a permission to carry paying passengers endorsement (endorsement 6A), this endorsement removes the exclusion related to carrying paying passengers
-until 2016, this was the only way to insure a vehicle used for ridesharing
-there are a few markets writing taxi insurance, and rates can be two or more times higher than personal insurance rates
Ridesharing Endorsement
-in 2016, a major Canadian insurer launched a ridesharing endorsement in ON; since then, a few others have launched their own versions
-these endorsements can be added to the standard owner’s policy to grant permission for the driver to carry paying passengers and to sue the vehicle for commercial ridesharing activities
-these endorsements are not standalone so the driver has to be insured with a specific insurer that offers the endorsement and meet the eligibility criteria to get coverage:
> They must be contracted with a TNC
> They must not exceed the max number of driving hours
> They must meet minimum licensing and driver experience guidelines
-coverage specifically extends to the periods when the driver has logged into the app, waiting for a ride request, is going to pick-up the passenger, and is carrying the passenger
-coverage does not apply to any other commercial activities and will not extend to provide coverage for any rides not arranged through the app
Definition - “Accommodation Sharing”
An arrangement set up by means of a website or mobile app in which a property primarily occupied by its owner is rented for a short time period to a TP
Other Auto-sharing Activities
-in addition to ridesharing, other sharing activities that can affect insureds’ personal auto insurance are carsharing and deliveries
-carsharing apps such a Turo and Evo, connect vehicle owners and renters
-vehicle owners can rent out their vehicles for a few hours, or days
-Turo has set up commercial fleet policies in ON, AB, and QC to cover all vehicles registered with the app
-similar to coverage under the Uber fleet policy in ON, coverage applies both during delivery and while the vehicle is being operated by the renter
-vehicle owners are required to notify their personal insurers in order for the fleet policy to apply
-numerous apps allow users to order services and deliveries from individuals, such as groceries or meals
-some examples are UberEATS, Instacart, Roady, and Postmates
-but providing a delivery service is considered commercial use in most cases, and owners will generally require a commercial rated policy
Accommodation Sharing
-creates risk exposures and potential insurance coverage gaps for both hosts and guests
-note, some seasonal dwelling forms permit occasional rental, usually with a max number of rentals and max number of rental days, but others may not at all
-homeowners policy wording may have a number of exclusions that limit coverage for exposures arising from accommodation sharing, including property damage exclusions, theft exclusions, and liability exclusions
Property Damage Exclusions
- Damage to the dwelling and contents of hosts
- Damage to the property of guests
Property Damage Exclusions - 1. Damage to dwelling and contents of hosts
-IBC homeowners form exclude damage to the dwelling and contents if the building is used in whole or in part for business purposes
-business is defined in the policy as ‘any continuous or regular pursuit undertaken for financial gain, including a trade, profession, or occupation
-whether the exclusion the exclusion applies to an accommodation-sharing rental will depend on whether this is considered a business purpose, it will also depend on how ‘continuous or regular’ is determined. This will likely relate to how often and for how long the property is rented
-QC has enacted legislation that states that hosts who “regularly” rent their properties are considered to be running business and are subject to the same legislation as hotels and B&B operations
-legislation does not clearly define “regular” and “occasional”, so the issue will likely be clarified through court case decisions
-if homeowners rent any part of their home, and if that rental qualifies as a business, a claim for damage to the building or contents could be denied. This exclusion applied even if the rental had nothing to do with the cause of damage
-some accommodation-sharing service providers include coverage to protect hosts from damage caused by guests, which may fill some of the gaps left by the exclusions in the HO forms
-Airbnb is one of the most popular accommodation sharing apps for how the organization managed the problem of property damage
Property Damage Exclusions - 2. Damage to property of guests
-the guest’s personal property is not covered under the host’s insurance policy due to the policy exclusion for property of roomers or boarders
-the policy extends to cover uninsured personal property of others while on the premises, but not the property of roomers or boarders who are not related to the homeowner
-many property policies cover the property of an insured who is temporarily residing at a non-owned premises worldwide
-thus the guest could seek indemnity for damaged property under their own policy
-also, if a guest’s property is damaged because of the host’s negligence or due to negligent condition of the property, the guest could sue the host to recover this loss
-the guest may even have a claim against the accommodation-sharing service provider
Theft exclusions
-HO forms also exclude loss or damage due to theft or attempted theft from the part of the dwelling rented to others, so the host’s insurer would not cover the claim if renter breaks into a locked room and steals host’s valuables. This exclusion will depend on some extent to the terms of the rental agreement, if the entire home is rented, it seems clear that theft of any property is excluded, however, if just a single room is rented, property stolen from other parts of the home could be covered
-due to the working of this exclusion, it can apply to thefts that are not committed by a guest or thefts that occur while the home is not rented by a guest
Liability Exclusions
-personal liability coverage under HO forms also contains 2 key exclusions related to accommodation-sharing activities
-although insurers will typically extend liability for a second family unit or a boarder, it is highly unlikely an insurer would agree to extend liability for accommodation-sharing activities
-HOs forms specifically exclude business pursuits conducted by the insured or business use of the premises that are not stated in the policy
-the definition of “business” is the same as for property coverage and also depends on what is considered as continuous or regular, and if renting the property qualifies as a business pursuit
-if the exclusion applied, the host may also lose the right to a defence under the policy, since the duty to defend only applies to insured claims
-an insurer would have to show that the host has clearly breached policy condition to avoid this duty
-this means if a guest is injured and sues the host, the host may have no coverage for both the damages and the legal defence costs
-this exclusion applies not just to the premises but to the personal actions of the host if they relate to the business
-consider a host who is meeting a guest at another location to hand over keys or a host brining in a cleaning service after guests leave
-a claim for injury or property damage from these activities could be excluded if they are related to the business of hosting
-there is also no coverage if the host is sued for damages by a guest for defamation or because the host invaded the guest’s privacy during the rental period
Guests Liability
-the guest may be liable for causing damage to the host’s property
-when a guest is insured under a personal liability policy, there is an exclusion for property in the care, custody and control of the insured
-it would limit accidental damage only, and only for a limited number of perils, such as fire
-the guest would be personally liable to the host for any other damage
Issues with Airbnb
-hoteliers threatened
-loss of revenue - such as tourism taxes, licensing or business permits
-safety of hosts and guests
-loss of affordable long-term rentals
-possibility of abuse of rent-control laws
Insurance Issues related to hosting
-other than Airbnb’s host protection insurance, there has not been a lot of movement in the insurance industry about coverage specific to people hosting on Airbnb, in Canada, only a few insurers provide coverage for STR
-“peer-to-peer home rental” or “peer-to-peer financial arrangement”
-Insurance Information Institute urges people who are considering providing accommodations to speak with insurer before they do
-if it is a one-time event, some insurers may allow policyholders to do so without any special endorsement or change in policy
-standard HO policies do not provide any coverage for business activities conducted in the home, so a business policy covering a hotel or a B&B would be required
-if a host is fined by their local city, they cannot seek compensation from Airbnb
Underwriter Considerations
-assuming that potential insureds disclose their intention to provide short-term accommodation, an UW will likely want to include these types of information when considering coverage:
> How often the owner has guests - for example, if it is strictly a seasonal thing
How many rooms are being rented?
-The number of guests the host rents to at one time
-Whether the host (or a member of the family) is normally there when guests are present
-whether information is provided about safety and security measures: smoke detectors, fire extinguishers, or sprinklers, clearly marked exits, handrails on staircases, and so on
-whether there is a pool
-whether the host allows guests to use on-site laundry facilities
