Home > Property & Casualty > Disrupters: Flying in the face of regulations and risks

Disrupters: Flying in the face of regulations and risks

fishThe shared economy continues to expand – from home rentals and personal drivers, to babysitting and cleaning jobs – this new breed of businesses are popping up all over, allowing customers to make simple online arrangements with service providers for a myriad of tasks. The premise behind the shared economy takes established business models and turns them on their head, and thanks to their unconventionality, these companies are “disrupting” major markets by luring consumers away from the more traditional forms of the same service. Entrepreneurs are launching their online companies via an app that can promise faster, cheaper and more accessible services, all while quietly avoiding many of the cumbersome insurance and regulatory laws that govern their traditional counterparts.

Nobody can deny the appeal – these companies are pro-consumer, and there’s something to be said for the convenience of getting someone to do just about anything for you via a simple mobile app transaction. The idea is also translating into big business – just look at the home sharing market as an example: Airbnb, the online marketplace that allows people to list and rent housing, has reportedly over 800,000 listings in over 34,000 cities worldwide. In 2014, the site helped connect more than 10 million homeowners with renters.

But sometimes it’s not all as rosy as it seems. Using Airbnb services may promise to save users time and money when booking travel accommodations, but the company continues to face threats from the hotel industry, which argues that online listings expose users to a various risks by violating city zoning codes (that basically prohibit people from running businesses in residential areas) and ignoring health and safety laws that govern the hospitality industry.

Other disruptors are starting to run into regulatory issues and legal troubles as well. Last week’s Boston Globe report on the various insurance affecting shared economy businesses is just the latest in a slew of safety and regulatory concerns these companies are facing (Insurance questions latest bump in in the road for ride share companies).

As pro-consumer as the shared economy is, it has also created a new set of challenges for risk managers and for regulators who are grappling with how to monitor and prevent potential losses.

My WGA colleagues have been working with many of these disruptors over this past couple of years to help guide them through the unique exposures that they face (we refer to this distinctive group as members of the new “Technology Enabled Service Marketplace“). We have have found that many of the companies in this space have little control over the risks they inherit, mainly because they rely on a staff of private citizens to perform the tasks and drive revenue. Until recently, most of them have danced around established industry codes and regulations, such as securing Workers Compensation insurance, providing an Employee Benefits plan, or even paying social security and unemployment taxes.

As for the homeowners and drivers who are offering up their services for pay on the other end, most personal insurance policies exclude coverage for any commercial activity and are not designed to cover unknown entities using them for hire.

San Francisco lawmakers recently passed an ordinance requiring hosts of rental properties to carry at least $500,000 in liability coverage. As a result, Airbnb began offering $1 million in “secondary” liability coverage to its users, meaning the host is still on the hook to submit a claim through their own insurance first. Their competitor, Home Away offers hosts the option to buy a ready-made primary insurance solution for renting their home. But the coverage isn’t cheap and may not appeal to all users. Furthermore, insurance laws tend to differ from state to state, which can complicate matters even further.

Beginning in July 2015, all California ride-renting companies will be prohibited from offloading insurance risks onto their drivers’ personal insurance providers. The bill may prompt insurers to develop new policies for drivers that handle both commercial and personal vehicle use.

In Massachusetts, there have been proposed regulations that would adhere to basic insurance and safety standards in light of complaints of sexual assault reports against Uber drivers. In fact, Uber recently added a safety checklist to the app for those using the service in Boston and Chicago. Last month, California prosecutors sued Uber and Lyft over both companies’ inadequate use of background checks and regulation of drivers. And another $5m lawsuit was filed last week claiming that the background checks are not as extensive as advertised.

Despite their undeniable appeal and rise in popularity, the shared economy remains an unknown territory for regulators and there is still much to be figured out when it comes to risk. But the drive more innovation, demand for faster and cheaper services, and the fact that there is no shortage of new ideas can only mean that growth within this sector will continue. It’s up to the rest of us in traditional services to get on board, become informed and more active members of the shared economy so that we can figure out the delicate balance between disruptor and smart risk management.


About the Author

Susan Forbes is the Chief Innovation Officer for WGA. She is responsible for WGA’s innovation leadership, communication and collaboration focused on three areas: new client products and services, client-facing technology services, and operating efficiencies.

617.646.0282| SForbes@wgains.com | Susan on LinkedIn | Follow on Twitter @WGAinnovation

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