The Sharing Economy – What You Need to Know Before You Share Your House or Car

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by Carolyn Konecki
Personal Lines Manager, Cavignac & Associates

Sharing applications such as Airbnb, VRBO, Uber and Lyft have revolutionized the way people travel and are even changing lifestyles. Many city dwellers and millennials are reducing the number of cars they own or are choosing not to own a car because they can easily get around with Uber and Lyft. Airbnb is considered the largest hotelier in the world and they don’t own a single property!

As sharing applications become more familiar to us, many property owners are considering renting out their homes or driving part-time for extra money. But what are the risks? Will your existing insurance cover you if someone gets injured in your home or car? As these sharing applications evolve, insurance companies are responding by adding endorsements for coverage or by clarifying exclusions.

Home Sharing

Occupancy (who lives in a home and how often they are there) is the single biggest determining factor when placing homeowners insurance. An owner-occupied home represents the safest risk for the insurance company. The owner lives in the house full-time and is there on a daily basis to notice if something goes wrong, such as a plumbing leak. Moreover, the owner has a vested interest in maintaining the property to maximize their investment.

A tenant-occupied home is the second most preferable risk for the insurance company. While the tenant doesn’t have the long-term incentive that the owner has, they do occupy the house on a daily basis and can report if something is amiss to the owner.

Homes that are vacant for any period of time are unattractive to insurance companies because of the higher risk of loss. In fact, many insurance contracts have a vacancy clause in them, stating that coverage is voided if the home is vacant for more than 30 days.

Houses listed on Airbnb or VRBO are considered short-term rentals and they present a different type of risk to the insurance company. A short-term rental is occupied sporadically and by different people. Since the guests typically only rent the home for a few days or weeks, there is no incentive to take care of the property, and often guests won’t recognize something that’s amiss because they are not there long enough to notice a change.

Because several different people come in and out of the home, the risk of property damage, theft and injury increases. I processed a claim on a vacation rental home involving a guest who fell down one stair into a sunken living room and broke her ankle. Not being familiar with the home’s layout, she innocently missed the stair. Her medical expenses and lost wages came to over $40,000!

Liability claims, such as this, are the insurance companies’ biggest concern. Short-term rentals are often used as vacation homes and the renters frequently host parties and other social gatherings. Because so many people are in and out of the home and alcohol is often served, the risk of a liability claim greatly increases. The property owner (and by extension their insurance company) can be held liable for the actions of and injuries to the renters and their guests. It is not surprising that, as part of the underwriting process, insurance companies will check to see if a residence is listed on one of the home sharing web sites.

We surveyed all the preferred, admitted insurance companies with whom we work regarding the acceptability of short-term rentals. Many of them will accept a homeowner renting out their home seasonally to one party for a period of two to four weeks a year. An example of this would be renting your home out in the summer to one family while you vacation elsewhere.

None of the insurance companies we surveyed will knowingly insure a home that is listed on a home sharing site such as Airbnb or VRBO and is being used as a short-term rental. The insurance companies consider short-term rentals to be a commercial exposure because they are generating business income for the owner. The home is no longer being used as a residence, but as a hotel.

So, if you are considering joining the home sharing craze, first contact your insurance agent to see if your carrier will continue to insure your home. You do not want to find out you have no coverage after a loss occurs.

Ride Sharing

Uber and Lyft have skyrocketed in popularity in recent years and are even getting credit for the decrease in drunk driving! For some people, the monthly cost of using a car sharing service is less than a car payment, insurance, gas, parking and maintenance expenses combined.  Both Uber and Lyft are actively recruiting drivers. The pay is good, the hours are flexible and driving seems like a good way to supplement your income by using an asset that you already own. And, since you already have auto insurance and Uber and Lyft provide some insurance, what’s the risk?

The risk is that every single insurance company we surveyed offers no insurance coverage when a ride sharing application is on. A personal auto policy is only for vehicles used for personal use. Coverage ends once the driver turns on the ridesharing application and the insurance companies will not cover a loss that happens when the insured is engaged in transporting others for a fee.

Both Uber and Lyft offer supplemental insurance for their drivers. The coverage depends on the rideshare application status:

  • When the ride sharing application is off, the ride sharing companies offer no insurance coverage and the driver’s personal insurance is the primary coverage for liability and physical damage.
  • When the ride sharing application is on and a ride has been accepted or is underway, both Uber and Lyft offer $1 million of liability coverage to third parties, which includes riders. They both offer $1 million of uninsured/underinsured motorist coverage for situations where another motorist causes the accident but doesn’t have adequate insurance to cover the bodily injuries of anyone in the rideshare vehicle. These are reasonable limits, generally much more than the average California driver carries.

But what about damage to the rideshare car? Both Uber and Lyft offer “contingent collision and comprehensive” coverage. This covers damage to the car, subject to a $2,500 deductible and is only offered if the rideshare owner carriers comprehensive and/or collision coverage on their own vehicle.

Here’s an example of how that works:  Sam drives his 2014 Honda Civic, worth $14,000, for Uber in his spare time and carries a $500 comprehensive deductible and a $1,000 collision deductible. While he is driving for Uber, he gets into an accident that causes $6,000 of damage to his car. Instead of having a $1,000 deductible and his insurance taking care of the rest of it, he will have a $2,500 deductible and Uber’s insurance will pay for the balance of the repairs.

  • When the ride sharing application is on but no ride has been accepted, the vehicle owner bears the most risk. As mentioned before, most, if not all, insurance companies exclude coverage if the ride sharing application is on, whether or not there is a passenger in the vehicle. Both Uber and Lyft offer $50,000 per person/$100,000 per occurrence of bodily injury liability coverage and a maximum of $25,000 of property damage coverage – limits that may be inadequate to protect the driver’s assets.

    Neither Uber nor Lyft offer any physical damage coverage for your car
    . As an example, Sam turned his application on and is driving around waiting for a ride and rear ends a $90,000 Tesla with two people in it, causing $50,000 of damage. One person is severely injured and incurs $60,000 of medical and other expenses, and the other only has $5,000 of medical expenses. Sam’s car is totaled. Uber will pay $50,000 of the first person’s injuries, $5,000 for the second person’s injuries and $25,000 toward the Tesla’s repairs. Sam is responsible for $10,000 of medical expenses, $25,000 of damage to the Tesla and the cost of his car ($14,000) – a total of $49,000!

Most insurance companies consider ridesharing to be business usage and their contracts specifically exclude coverage when the vehicle is used as a business to generate income. If you are considering using your vehicle for ride sharing, consider purchasing a commercial auto policy that is designed for this exposure. Do not rely on your personal auto policy.

The Bottom Line

In summary, renting out your home for a fee or driving others for a fee is a commercial (business) exposure and not a personal exposure. A homeowners or auto policy is not designed to cover the additional risks of short-term rentals or ridesharing. Call your agent to find out exactly what your insurance company does or does not cover so that you can plan accordingly and properly protect yourself and your assets.