The sharing economy is changing almost as fast as consumers’ desire to access a wide variety of services at their fingertips. The emergence of new marketplaces and technologies creates new business opportunities, but also introduces unique risks for firms operating within the ecosystem. Businesses in the sharing economy have to deal with so many parties that it’s often difficult to keep track of who should be covered in case of an accident or other mishap. Fortunately, there are many solutions that can help reduce operational risk and cut insurance costs. In this blog post, we look at some of the most common types of insurance you should consider when running your marketplace startup.
You'll face some risk no matter what kind of company you run, but when you operate a “sharing economy” business, you’ll encounter distinct challenges. Similar to car insurance, sharing economy insurance covers losses if your business experiences an accident or other incident. However, while car insurance generally protects cars, sharing economy insurance is tailored to the specific risks associated with certain types of businesses. It's important to note that marketplace companies typically do not fall under the umbrella of transportation providers. Uber, for example, is not technically considered a transportation company. The same theory applies to Airbnb and other platforms that help people rent their belongings.
When you’re deciding what type of marketplace insurance to purchase, there are several factors to consider. Some of the most important include:
What type of marketplace are you operating? For example, if you’re operating a marketplace in which users can purchase and sell items that have a high value (like cars or jewelry), you’ll need to purchase more robust theft and loss coverage than a marketplace that only deals with everyday items (like second-hand clothing).
How do you want users to interact with your marketplace? For example, if you want your users to interact with the marketplace through an app or Web site, you’ll need to make sure your policy covers cyber-crimes or online scams.
Collision/Loss of Use Insurance (C/LOU)
Collision/Loss of Use insurance protects you against damage to your customer’s property or bodily injury to any person who uses the product. The most common scenario for this is when you rent out a car through an app like Turo. If a customer damages the car, they will likely have to pay for the repairs. In many situations, that’s a loss for the renter because it messes up the schedule they had planned for the car.
Additional Coverage for Marketplace Startups - Turo, Airbnb and Others
Are you operating a marketplace business that offers additional coverages? Turo offers its users a $1 million commercial general liability (CGL) policy. Airbnb provides $1 million of commercial property coverage to hosts. If your marketplace offers additional coverages, make sure you understand how they work and what the limits are. This can help avoid a larger-than-needed insurance policy.
Fraud Protection Insurance (FPI)
Fraud Protection Insurance protects against claims primarily related to fraud. While not every claim will be related to fraud, it’s important to have this coverage if your business involves users interacting. For instance, if a user steals someone’s money through a fraudulent transaction on your platform, that person could make a claim against your FPI policy. You would want to protect against these types of claims by purchasing FPI.
To help you sort through the complex world of marketplace risk and insurance, we’ve added 5 insurance sessions to the Sharing Economy Global Summit (Oct. 11-13, London):
Marketplace Insurance Solutions: The Dynamic Relationships Between a Broker, Underwriter, and Actuary With Their Client, Chris Moore and Matthew Rout of Apollo ibott, Angelica Ronga of DoorDash and Zach Pilalis of Marsh
Digital Platforms & AI Technology Are Transforming The Insurance Industry: Here's How, Yaron Zurr of CONNECTED Insurance, Nick O'Sullivan of Joyride, Sarah Binder of Lime and Chris Moore of Apollo ibott
By using a marketplace to connect buyers and sellers, you can build a more robust community and potentially create new markets for your startup. At the same time, you’re increasing exposure and subjecting your business to potential liability, which means you need to be sure your system is robust enough to protect you and your customers.
To help you navigate the risks associated with marketplace startups, it’s important to have an insurance strategy that protects you against potential financial losses, such as fraud, bodily injury and theft. From a legal perspective, you need to invest in insurance that is compliant with all applicable laws for your marketplace. The best way to do this is to partner with organizations and experts experienced in the sharing economy.
To learn more about the global summit, visit: https://www.marketplacerisk.com/global-summit-2022.