Sharing economy creating "unique exposures" for HNW clients
“As insurance professionals, we have to stay ahead in what’s happening in the lives of our clients. This [the sharing economy] is a great example of that,” said Stacey Warren, chief sales and customer service experience officer at Vault, during a 2022 PRMA Summit panel discussion on ‘The Sharing Economy Risks Exposed’.
The Private Risk Management Association (PRMA) is a nonprofit that brings together insurance industry leaders in the high net-worth (HNW) private risk and insurance management niche. According to the PRMA Outlook Survey 2022, a third of the organization’s members said they’re seeing clients more involved in the sharing economy this year.
“You can’t assume that just because your client is a HNW client, they’re not renting out their pool or renting out their driveway,” said Warren. “Because it’s so accessible and so easy for households to do this, people are doing it – it’s kind of the cool thing. But it’s creating some very unique exposures for us. How do we ensure that our customers are covered?
“Are we equipped as agents? Are we asking the right questions? How do we make sure that if our client puts their home on Airbnb mid-term, or rents out their pool mid-term that we’re ensuring they have proper coverage? There’s a whole set of unique challenges that come with this topic. Are we equipped as carriers? Can we provide [agents] the solutions that they need to cover their clients? I don’t think the answer is yes.”
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Peter Piotrowski, chief claims officer at Vault, has seen various sharing economy claims from HNW clients, where the exposures were largely unconsidered.
“When I think about someone renting out their pool in their backyard, that doesn’t seem so bad; the pools are probably well maintained, and there’s equipment out there,” he said. “But then I think: Is this a commercial exposure now, or is this a personal lines exposure? When you go to a public pool or a paid-for pool, there are diving directions, there are indicators of where you can jump, how deep the pool is, and there are life saving devices. [Almost] none of that exists in a [private] pool environment.
“I’ve also seen Airbnbs being rented to one or two individuals, but all of a sudden there’s a party there. There was a drive-by shooting at one Airbnb rental in a very lovely neighborhood. Turned out it was rented to a really nefarious figure who had a wild social media presence, posted that he was at the event, attracted some of his adversaries, and they shot up the house. That was an exposure that was never really anticipated.”
In most homeowners’ insurance policies, there are limitations applied to commercial activities. One challenge with sharing economy exposures – such as renting out a pool or a driveway – is the gray area between incidental business (which can be covered under a homeowners’ policy) and true commercial risks (which require separate commercial insurance).
The PRMA panel discussed how critical it is for insurance agents to quiz their clients accordingly to identify whether they’re involving in any sharing economy activities, how often they’re engaging in such activity, and how much income they’re deriving from it. This information will ensure that they’re adequately covered for their unique sharing economy exposures.
“Throw that underwriter hat on and think about: if you were presented this risk, how would you find a solution for it?” said Amanda Martinez, premier marketing manager at Hylant. “Things like finding the actual listing [on Airbnb, for example] and sending that to an underwriter is helpful. And look for information from the listing. How much is the weekly price? Can you rent it for less than a week? Those are all going to be concerns because there’s more people coming in and out of the house.
“How do you do background checks? As a homeowner, you’re probably not thinking about that; you’re thinking about the income that you’re getting, so you can pay off your taxes or whatever it may be. With the income, how much are you making? Does that cause issues with incidental business? We [as agents and underwriters] want to make sure that we understand some of those things.”
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The panel – which also included Mary Robinson, personal lines sales and marketing with Cincinnati Insurance, MaryAnne Chandler, national risk placement advisor with G2, and Roper DeGarmo, founder of Signature Personal Insurance – agreed that strong collaboration between insureds, agents, and underwriters is essential in the fast-evolving sharing economy.
For example, if a HNW homeowner is renting their property on Airbnb, an underwriter may want to know if there’s a pool, or a boat, or any type of vehicle (golf carts, for example) that may pose additional risks to renters. Piotrowski suggested that the parties could work better together on risk management, presenting HNW clients with useful tools on how to protect their homes and secure their valuables.
“We’ve seen situations where the renters may have been told by the owners: ‘Do not use this equipment,’ but their friends or other invitees [think] it doesn’t relate to them. Next thing, someone’s borrowing a golf cart [because] the keys are there, so why not? Or the keys are in the boat [so they go for a jaunt],” he said.
“That turns into not only an exposure of owning this item, but you as the owner of it – do you have some additional [liability] for negligent entrustment or negligent supervision by allowing folks – could be minors, could be intoxicated individuals – access to your stuff? We haven’t really educated them well enough to keep it protected or keep it unavailable for the renters.”
While the sharing economy is growing in popularity, many clients are unaware of the risks involved. The ‘Sharing Economy Risks Exposed’ session at the PRMA Summit looked at the pros and cons of the sharing economy to help agents confidently educate and guide HNW clients as they entertain sharing economy endeavors.
