Liability Risk

Sharing Risk

The sharing economy is projected to increase more than 20-fold in the next 10 years, but risk abounds.
By: | March 1, 2016 • 7 min read

Uber, Lyft, Airbnb and Homeaway — we’ve probably used at least one, if not all, of these ride sharing or hosting services at some point in the last year.


For the customer, they are easy to use and often cheaper than using a taxi or staying in a hotel, and they’re flexible income boosters for the people providing the services.

Given these immediate benefits, it’s no wonder that the sharing economy is booming, with PwC estimating that the industry will grow from $15 billion in 2013 to $335 billion by 2025.

However, despite its eye-popping growth, the sector faces a near-daily raft of legal and regulatory challenges that it will have to overcome. Those challenges include terms of insurance requirements, equal access and employment laws, zoning regulations, and health and safety standards.

There have also been a host of recent liability claims and lawsuits arising from high profile incidents, including reports of pedestrian deaths, rapes of home renters, invasion of privacy and bodily injury.

Michael Nelson, partner, Sutherland Asbill & Brennan

Michael Nelson, partner, Sutherland Asbill & Brennan

Among the most sensational allegations to hit the headlines are rented Airbnb properties ransacked by guests throwing wild parties and pedestrians hit and killed by distracted Uber drivers.

In many cases, the individuals who provide these services find out too late that they’re not covered by their insurance policies. That’s because their policies are not built for commercial use.

“The largest risk with the sharing economy is that you are now operating in a much more fluid environment,” said Michael Nelson, partner at Sutherland Asbill & Brennan’s New York office.

“The moment you decide to open up your business to a wider population, it creates a situation where more unknowns are likely to happen and therefore the legal liabilities are greater.”

Risks of the Sharing Economy

Melissa Neis, vice president at Parr Insurance Brokerage, said that risks exist throughout the sharing economy, from the platform itself, such as Airbnb or Uber, to the hosts or drivers who provide services, through to the end customer, and ultimately the wider community.

She said that the platforms often faced the biggest liability of having to thoroughly screen and, where necessary, train the individuals who provide services.

On top of that, she said, the hosts who rent out their properties through the likes of Airbnb and Homeaway are exposed to a host of privacy issues if they have unscreened guests with access to communal areas in the homes where they are staying.

Randy Nornes, executive vice president, Aon Risk Solutions

Randy Nornes, executive vice president, Aon Risk Solutions

“Because it’s such an emerging market and a new model, there isn’t necessarily the legislation or regulation in every country yet to be able to manage these risks,” she said.

Randy Nornes, executive vice president at Aon Risk Solutions, said that, given their global brands, the greatest risk for the platforms is protecting their reputation.

“When things go wrong you hear a lot of stories, particularly about the hosting services because there are millions of people renting out their homes everyday, whereas the transportation ones tend to be more sensational because they are fewer and far between,” he said.

“With these big companies, that can be reputationally damaging for them, so it’s important that they weed out any potential problems and have a proper complaint procedure in place for dealing with them from the outset.”

“What they can’t control is the exposures they face — it’s not as if they can go out and survey each and every home or check and see the quality of maintenance on a particular vehicle.” — Eric Silverstein, SVP, Willis Towers Watson

Howard Mills, Deloitte’s global insurance regulatory leader, said the biggest challenge for insurers operating in the sharing economy is underwriting and pricing for a completely different risk profile than the policy’s original intended use.


In the case of ride sharing, he said, a driver’s risk profile can change dramatically from the moment they go from driving their own car to when they activate the platform’s app before picking up a fare, to when they actually pick up that fare.

As a result of these changes in vehicle use, he said, policies can jump in price by as much as 25 percent to 30 percent.

“Say you have a standard auto insurance policy and you then decide to become a livery driver, that changes your risk profile significantly,” he said.

Kate Sampson, managing director, Marsh

Kate Sampson, managing director, Marsh

“Or in the case of a traditional homeowner’s policy, you decide you are going to rent out your home, or in effect become a mini-hotel. The insurer has no idea as to your risk profile and the people who might be occupying your home.”

Kate Sampson, managing director at Marsh in San Francisco, developed the first ride sharing insurance program for Lyft. She said that an added problem for many of the transportation network platforms is that they entered into the market knowing that there was a lot of ambiguity around the insurance contracts available in the U.S. and the different state insurance requirements.

“As an insurance broker, we have had to look at what was available to them in terms of insurance and how to overlay a product that would protect both the drivers and the general public,” said Sampson.

Lack of Insurance Coverage

Neis said that there is a general lack of understanding by the insurance industry about many of these platforms’ exposures, as well as a lack of specific programs designed to cover them.

Melissa Neis, vice president, Parr Insurance Brokerage

Melissa Neis, vice president, Parr Insurance Brokerage

“It’s tough for these businesses to find an agent, let alone an insurance company that understands their exposures and has access to the markets that can address them,” she said.

“Generally the insurance programs that are out there are both cost prohibitive and don’t offer comprehensive coverage.”

Neis said that most homeowners’ or drivers’ insurance policies don’t protect sharing economy users against some of the potential commercial use risks they can face.

Most home insurance policies are only designed to cover the named insured and family who live at that address, and they exclude commercial and short-term rental use, she said. Similarly, auto insurance typically excludes commercial and livery use.

“That might not be something that the service provider necessarily understands when they start to engage with these sharing economy businesses,” Neis said.


And while the likes of Airbnb and Uber have developed insurance programs for their service providers — Airbnb offers free primary coverage for liability for up to $1 million per incident — she said that many companies don’t have the wherewithal to offer their contractors a comprehensive policy.

On the insurers’ part, she said that while the sharing economy presented a big growth opportunity, many were wary of entering that market given the number of high profile court cases and the lack of regulation and legislation, not to mention the limited availability of terms and pricing data.

“It’s very common to hear from underwriters that they would rather compete for more traditional business rather than something more conceptual that is not as well established, as in the case of sharing economy companies,” she said.

Howard Mills, global insurance regulatory leader, Deloitte

Howard Mills, global insurance regulatory leader, Deloitte

Neis said that while endorsements may be written into some auto insurance programs to include commercial use, there is less development of programs on the home-sharing side because it is less profitable.

“When it comes to building some of the larger programs, I’m only aware of one or two underwriters at Lloyd’s of London that are actually looking at these types of businesses,” she said.

“The companies are probably not going to get the insurance coverage that they would like from the outset, so they may have to just settle for some form of cover in the meantime and build up a positive loss history that enables them to then work toward a more bespoke program.”

Risk Mitigation Techniques

Mills said that some companies such as Uber and Airbnb have responded to these risks by developing their own registry to block badly behaved or abusive customers from using the services.

Sampson added that the platforms are also running background checks on drivers, as well as using ratings systems for both the service providers and the customers that use them in order to gather feedback and provide them with a score.

Eric Silverstein, senior vice president, Willis Towers Watson

Eric Silverstein, senior vice president, Willis Towers Watson

“Many of these companies have screening processes in place and provide some form of insurance,” said Eric Silverstein, senior vice president of the national casualty broking practice at Willis Towers Watson.

“However, what they can’t control is the exposures they face — it’s not as if they can go out and survey each and every home or check and see the quality of maintenance on a particular vehicle.”

Mills said that despite their initial reluctance, more insurers have woken up to the shift toward the use of the sharing economy and the significant role they can play in its development.

“They need to embrace it and to be part of it so that ultimately they will innovate, get better on pricing and develop more products,” he said.

“The insurance industry therefore has to redesign its whole business practice to get to products and services that meet the needs of this new peer-to-peer economy and to provide a better customer experience that goes beyond just pricing.”


Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]