Your spare room is no longer a storage space – it’s a holiday destination.

The shed, full of homages to masculinity in their original packaging, could be put to better use by Baz down the road. And the second car, only used when the in-laws are in town, could be a money-spinner.

These dust-collectors are being rebranded ‘unused assets’ or ‘idle capacity’ by peer-to-peer (P2P) businesses that boast millions of clients worldwide.

But insuring this burgeoning industry involves “more shades of grey than a Dulux colour chart”, according to the Insurance Council of Australia’s Campbell Fuller.

“The regulatory environment is slow to respond and there is a lot of grey area that the insurance industry is seeking to understand,” he says.

But that doesn’t mean the industry should put P2P startups in the too-hard-basket, advises Grattan Institute economist Jim Minifie.

“There’s no question that insurers are perfectly placed to exploit opportunities for P2P,” the Institute’s Productivity Growth Program Director says.

The online and smart-phone based phenomenon is variously known as the P2P market, collaborative consumption or the sharing economy. The defining feature of P2P applications is they encourage access over ownership: matching peers who rent, lend or share goods and services, rather than own them.

There’s no question insurers are perfectly placed for P2P.

For instance, Australian P2P startup Parkhound helps its 10,000 members find a carpark in an empty garage or driveway nearby.

Recently-listed jobs on Australian outsourcing platform Airtasker range from the mundane – ‘mow my lawn’ or ‘assemble my IKEA furniture’, to the colourful – ‘meet me and then paint a picture of my parrot’ or ‘make me a full-sized men’s onesie. Cat-themed. Would like faux-fur’.

Peer-to-peer model comes to insurance

Small change, big effect

In 2011, Time magazine named collaborative consumption as an idea that would “change the world”, and maybe it already has. A recent Price Waterhouse Cooper survey shows the global sharing economy is worth more than US$15 billion today and is tipped to reach $335 billion by 2025.

Every night, almost a million Airbnb guests rest their heads in a stranger’s home. In Australia, more than 30,000 Airbnb properties are listed– almost 10,000 in Sydney alone. Every day, up to a million Uber drivers ferry commuters around 311 cities. The multi-billion dollar San Franciscan start-up has thousands of drivers in Australia.

The basic principle that anchors these startups – trust – is nothing new, according to the Grattan Institute’s Minifie. “But what has made transactions between parties who don’t know one another so widespread in the modern era is the emergence of online platforms,” he says.“They reduce the cost of transacting, give people confidence about financial aspects of the transaction, and can also provide a track record of the stranger you’re dealing with.”

One way for insurers and brokers to share in the spoils of the sharing economy is to target the clients of P2P startups, where the ICA’s Campbell Fuller says some P2P businesses aren’t addressing the insurance risks of their Australian clients.

In many jurisdictions, sub-letting and ride-hailing models may not be legal, leaving their well-meaning peers high and dry due to insurance exclusions on illegal activities.

Peers are also at risk of commercial activity voiding their insurance policies, not having appropriate professional indemnity insurance, and public liability claims associated with letting people on their premises. Fuller says in many cases, existing home or small-business insurance policies can be adjusted to cover P2P activities.

In fact, in September IAG launched a new add-on product called ShareCover, aimed directly at people opening their homes and rooms up to Airbnb and the like. The product covers theft, damage and public liability for as little as $4 for each night hosting a guest.

The US market is more developed, with widespread development of products for P2P clients. In the ride-sharing space alone, there’s half a dozen new companies aimed at bridging drivers’ insurance gap.

One advantage of working with clients, rather than P2P platforms directly, is that you’re not investing a huge amount of time or resources in a single startup. The Grattan Institute’s Jim Minifie: “There’s been a totally unsustainable gold-rush level of different competing platforms, most of which are going to just vanish without trace.”

Seeking cover

When it comes to covering P2P operations, existing products can sometimes be a good starting point, as Insuret Managing Director Jason McDonnell discovered when brokering insurance for startup Car Next Door.

“For the most part, P2P is just another form of hire,” he explains. “We have 20-plus years’ experience insuring car rental businesses so we had a product primarily ready to go.”

IMC Insurance Brokers Director James Skiadas took a similar approach. Already a specialist in insuring limousine and other professional hire car drivers, Skiadas has created a public liability facility for UberX drivers, which is expected to officially launch imminently. UberX’s rapid growth in Australia means the product’s potential market is already at least 15,000 drivers strong, with Uber predicting driver numbers to hit 20,000 by the end of the year.

Insuret’s McDonnell says one of the biggest hurdles for P2P businesses is meeting Australian regulations. “Overseas regulations are really friendly for P2P business – they can sell directly to the customer,” he says. “But in Australia they can’t act as sales agents for an insurer so it’s very hard for these guys to use overseas models without offending the laws.”

As a result, McDonnell warns that P2P work takes time and money. “There’s a lot of cost and groundwork that goes in before you start making money off these guys, or start developing premiums.”

The groundwork with Car Next Door took several months and required the startup to “tear down its model and start again”. Ultimately Insuret came up with a policy for Car Next Door that treated it like a car rental business with a fleet of vehicles.

CASE STUDY: Worst-case scenario

“Rather than having to insure the vehicles individually, Car Next Door clients join as members, enabling them to attach to the startup’s fleet insurance program,” McDonnell says. Members must then sign up to three different contracts. “There is a level of complexity at law to make sure all of those things fit.”

Getting a slice

The alternative technique is to work with promising platforms and eliminate risks from the start. That was the approach taken by the broker behind Australian brands PetHomeStay and Airtasker, Geoff Stooke.

“There’s lots of problems in the P2P space, and we’re problem solvers,” the Managing Director of Modern Risk Solutions says. “We can negotiate, understand risks and come up with personalised solutions rather than off-the-shelf products.”

It took him about six months of negotiation, trust-building and policy development to lock down an insurer for local startups Airtasker and PetHomeStay.

He says the biggest fear for insurers is pricing the unknown. “If you can give them even a little bit of data it does go a long way,” he says.

P2P platforms and insurers can cover off a great deal of risk with in-built trust mechanisms, he says.  Feedback and rating systems are just the tip of the iceberg.

There are a lot of problems in the P2P space, and we’re problem solvers.

Your Facebook, LinkedIn and Twitter pages are often connected to a P2P’s user profile, deepening the digital footprint, while criminal background checks, security deposits, medical checks and running credit histories are also becoming the norm.

“On most of these platforms, you do capture enough information and there’s enough social proofing that it can be underwritten,” he says. And trust-building tools are developing as rapidly as the P2P businesses themselves, Stooke observes.

“I’ve even got some clients looking at facial recognition technology to verify people who are on banned lists,” he says.

Yet no matter how many precautions P2Ps take, there will always be someone who slips through the cracks and dents a company’s reputation.

Airbnb recently assisted a NSW host who’d been contacted by a renter through the site, but dealt in cash.  It was a clear breach of Airbnb’s T&Cs, but the firm decided to assist the unwitting host after her property was allegedly used as a makeshift brothel – bringing the industry’s “shades of grey” up to 50.