How the insurance industry is responding to the sharing economy

Debbie Wosskow created a way to help travelers avoid hotel costs on their next vacation by swapping their Manhattan apartment for a villa in Zanzibar. What she hasn’t figured out is how to insure their stuff.

Wosskow, chief executive officer of London-based Love Home Swap, which she describes as “online dating for homes,” said it was easier to find people in 95 countries to post properties on the website and make a trade than to line up coverage in case something goes wrong. After contacting about two dozen insurers, she’s been able to strike a deal for coverage of residences only in Europe. That means about two-thirds of homeowners will have to arrange their own or go without.

“It’s a nightmare,” she said. “The insurance industry as a whole has been painfully, and I emphasize painfully, slow to react and offer relevant services.”

Startups that help people rent their houses and cars to strangers have proliferated on the Internet, with Wosskow’s firm now listing about 5,500 properties, three times as many as in December. The entrepreneurs behind the companies are finding they have to convince insurers from Warren Buffett’s Berkshire Hathaway Inc. to Hiscox Ltd. they’re worth the risk.

The process was a surprise for Tony Adam, who co-founded Eventup, a service for finding and booking properties for parties and other gatherings. It took only two months for the startup to build and launch its website and three to secure a policy through Lloyd’s of London, he said.

‘Didn’t Understand’

“I thought it would be as simple as going to a site and finding $1 million of coverage and taking care of it,” said Adam who, like other entrepreneurs, declined to disclose his company’s insurance cost. “Some brokers didn’t understand what we were doing.”

Part of the challenge for the startups is that they’re asking insurers to blend elements of policies that protect personal property with ones tailored toward companies, said Paul Mang, a partner at Razor’s Edge Consulting and the managing director of Avarie Capital LLC, which invests in companies involved in the insurance industry.

There are also generational differences. The startups are advocating for an idea of property that tends to appeal more to younger people than older insurance executives, he said.

“It’s hard for baby boomers to get their head around this,” said Mang, a former leader within McKinsey & Co.’s property-casualty insurance practice. “Why would anybody rent out their car for $5 an hour?”

Cold Calls

The search for Getaround, which helps car owners rent out vehicles and counts Yahoo! Inc. CEO Marissa Mayer among its investors, took more than a year and a shift in business plan. Sam Zaid, the company’s CEO, said he contacted between 60 and 80 carriers and, at one point, resorted to cold calling insurance executives he found on LinkedIn Corp.’s website.

Getaround initially planned to offer its service on university campuses. Insuring a pool of students was a snag for some carriers, said Zaid, so the startup shifted its focus to urban areas. The service is available in cities including San Francisco, Austin, Texas, and Portland, Oregon.

An insurance wholesaler eventually put Getaround in contact with Berkshire, which agreed in November 2010 to underwrite coverage for three months, said Zaid. He later secured an annual policy from Buffett’s firm for liability, collision and theft during a rental.

“We definitely pay a premium still, given the early nature of the industry, but I think that’s OK,” said Zaid in a phone interview. “Paying a premium to get a company like Berkshire felt like the right trade-off.”

$1 Million Limit

Accidents in recent months have shown what can go wrong as sharing gains popularity. In February, a car that was rented through a service called RelayRides crashed in Boston, killing the driver and injuring four people in another vehicle. The startup has a liability policy with a $1 million limit. That amount could be exhausted, Jonathan Karon, a partner at Boston- based Karon & Dalimonte LLP, who represents one of the injured people, said in a phone interview.

“Almost any other car on the road would have been covered by a fraction of the million dollar coverage available for this claim,” Alex Benn, RelayRide’s vice president of business development and trust and safety, said in an e-mailed statement. “This tragic incident is an outlier from our many thousands of reservations.”

RelayRides, which received funding from the venture-capital arms of Google Inc. and General Motors Co., operates in 46 states and its website highlights cities including Chicago and Los Angeles.

Lloyd’s of London

A San Francisco resident came back from a trip last year to find her apartment vandalized after renting it out on Airbnb Inc. After the incident, the startup partnered with Lloyd’s to cover all bookings on the site for as much as $1 million in property damage at residences in countries including the U.S., Germany and Australia. The guarantee doesn’t provide liability protection for the host.

“What occurred last summer was a tragic event,” Emily Joffrion, a spokeswoman for the company, said in an e-mail. In addition to the $1 million guarantee, the company has responded by hiring staff to promote trust and safety.

The startup has booked more than 10 million guest nights since its founding in 2008, and incidents like the one last year are “incredibly rare,” she said. “Over the course of the four years we’ve been in business, we have not been contacted by our community about significant liability claims, attempts at claims, or judgments.”

Claims Data 

Mang, the former McKinsey consultant, said he expects that the insurance industry will craft policies to help manage some of the risks. Beth Leri, an outside spokeswoman for Lloyd’s, declined to comment as did Hiscox’s Alyssa Daskalakis. Berkshire didn’t respond to a request for comment left with Buffett’s assistant.

“It’ll be costly” for the startups, Mang said in a phone interview. “But I don’t think this will be the issue that stops their development.”

Prices for coverage should come down as sharing becomes more common and insurers accumulate data, said Getaround’s Zaid. The startup sends Berkshire a monthly report and sometimes has conversations to clarify policy terms, such as when a car owner in the Bay Area asked whether he could list his DeLorean.

The stainless-steel sports car featured as a time-travel device in the “Back to the Future” movie trilogy was produced for the U.S. market in the early 1980s. Getaround’s policy requires that cars be model-year 1995 or newer.

Berkshire’s response, according to Zaid: no problem.

The startups need to partner with insurers to grow, said Love Home Swap’s Wosskow, whose company’s Europe-only coverage, to be underwritten by Hiscox, will protect against property damage and last-minute trip cancellations. The new firms are different from Web companies that don’t require users to interact in the real world, she said.

“The business of my business is physical,” said Wosskow. “It’s about sharing, and sharing is about people.”

Editors: Dan Kraut, Steve Dickson. To contact the reporter on this story: Noah Buhayar in New York at [email protected]. To contact the editor responsible for this story: Dan Kraut at [email protected].