The sharing economy is growing at a tremendous rate, with more and more individuals participating in exchanges of services and property. Along with car sharing companies, home sharing companies have rapidly achieved high rates of market penetration and now face increasing regulation.
There are many benefits to peer-to-peer home rentals. A homeowner can transform a spare room into a money-making asset and even fund a whole vacation by renting out his home while he’s away. Travelers quickly and easily gain access to inexpensive, convenient, and informal places to stay—including well-equipped accommodations in unusual places. However, home sharing brings new risks for homeowners and travelers, as well.
In business terms, the sharing economy functions by lowering the transaction costs of more traditional business exchanges—for example, paying a fee to a hotel company or a city taxi commission. However, the sharing economy also creates a trust gap between the two parties in the transaction. Traditionally, it was the business’ established reputation in the marketplace which enabled trust; in order to participate in a peer-to-peer home rental system, the participants must trust one another without this traditional brand of proof. A lack of trust is arguably one of the most significant barriers to individuals participating in the sharing economy today. Innovative insurance coverage can play a vital role in helping to close this trust gap by providing the protection people and companies need to participate in peer-to-peer exchanges.
What types of risks are involved in participating in a peer-to-peer exchange such as a peer-to-peer home rental for property owners? For renters? For the home sharing company? There have been cases of renters damaging and stealing their hosts’ property: hosts have returned home to find closet doors broken and passports, birth certificates, cash, credit cards, jewelry, cameras, laptops, and hard drives missing, leading not only to lost property, but also to the risk of identity theft. Renters can face serious hazards as well: staying in a home without a carbon monoxide detector, first aid kit, or that is not ‘up to code’ when it comes to building safety can be very dangerous and potentially lethal. Regulations surrounding liability in peer-to-peer exchanges are not yet well established; personal injury incidents in shared homes can lead to lawsuits that affect both parties and damage the home sharing company’s reputation in the marketplace.
Insurance can be a valuable solution to help protect all parties involved in peer-to-peer home sharing. In 2015, through our commitment to innovation and our active response to our clients’ emerging needs, AIG introduced insurance coverage to help protect homeowners in the sharing economy. To better understand the risks involved in peer-to-peer home sharing, and to explore the risks involved in other areas of the sharing economy, see the charts below.