Q&A with Randy Nornes

What is the sharing economy?

The sharing economy is an economic model that allows people to rent or borrow an asset, primarily using Internet-based technology. Take rental homes, for example. You’ve got Airbnb, FlipKey and HomeAway. These models allow owners to earn money by “sharing” a home or room, and the other party gets an interesting place to stay that may be slightly more affordable. The technology that connects an owner with a consumer is what makes the sharing economy possible.

Are there risks for owners?

There’s an awareness issue. Generally people are not overly sophisticated about personal insurance coverages such as auto, homeowners and renters insurance. Most people rely on an agent to tell them what coverage is needed. That works if you’re asking the right person the right questions. But that’s not typically happening in the home context. Most, if not all, traditional homeowners policies would not cover someone who is operating a rental business or a bed and breakfast without disclosing that. There’s a very real gap.

In the very early days of ride sharing there were a lot of issues. Commercial use of a personal car created a definite coverage gap. The insurance industry was kind of slow to step up. Fortunately, insurers have since created an array of new products that provide much greater certainty for automobile risk in the sharing economy.

What do consumers worry about?

Consumers want to know there is a basic level of screening. If I’m ride sharing I want to know someone is vetting the people I’m interacting with. I want to feel like it’s a known-to-known transaction, even though I don’t know the other person. I want to know the party that brings us together has an incentive to know who both sides are.

The whole business model hinges on trust and reputation. If the person in the middle loses trust, or is disappointed, the whole thing starts to unravel. There’s a huge incentive to maintain quality, maintain transparency and maintain trust. That’s more powerful than any regulation.

What are the insurance implications?

For any sharing economy business, you really need to focus on understanding the business model and identifying potential coverage gaps. When you allow someone to use an asset that you own in exchange for some form of payment, you have now become a commercial enterprise. Understanding the risks of your small commercial business and related insurance issues is critically important.

The sharing economy presents a significant, high-growth opportunity for the insurance industry. Insurance and risk are key factors in sharing economy success. As an industry we need to embrace these new business models and innovate together.