Kathy Mylett Morgan was fully prepared to return her tenant’s security deposit when the latter moved out of the four-unit building in San Francisco’s Noe Valley after 15 years.
The tenant had always kept her apartment tidy and was respectful of all public spaces. Unfortunately, the tenant’s movers damaged the stairwell walls as they moved heavy pieces of furniture.
When she tried to recoup the $450 in damages, she ran up against a curious technicality: only damage to individual spaces was covered, not to communal areas.
“That was insane,” says Mylett Morgan, who is herself a contractor and carries liability insurance for any damage she might cause at one of her jobs. “If you hire a moving company, they’re supposed to have liability coverage.”
But Mylett Morgan’s tenant didn’t hire a moving company. She found the movers through an online platform, and she found out too late, that there were gaps in insurance coverage.
After many phone calls, Mylett Morgan eventually got some compensation. The platform paid $200 and the rest came from the tenant’s security deposit.
Welcome to the gig economy, a marketplace that unites people who can provide short-term services with people who need them. However, in these new marketplaces it isn’t always clear whose insurance is covering what.
New economic realities
There have always been the independent workers, of course, people who eschew the 9-5 and set their own course.
But the sharing economy is something different. It relies on a technology platform to bring together service providers with people needing services.
Need a ride to the airport? No need to stand on a corner and hope a yellow cab stops for you. It’s much easier to summon a ride that comes right to your door through an app.
But with the convenience and access, workers and consumers may not appreciate how much risk they’re taking. Gig work doesn’t fall neatly into commercial insurance or personal insurance.
When a problem occurs, customers are unclear where to file claims and how to get them resolved. Workers, meanwhile, are left trying to work out where they are covered by service providers and where they need coverage from personal plans.
A growing share of the workforce
The U.S. Department of Labor has a hard time tracking gig workers since this economy is so new and fluid. How do you count someone who works as a sales manager by day, and then rents out a spare bedroom above their garage to travelers?
Financial services firm Intuit estimates that gig workers make up 34% of the workforce. Those numbers are expected to grow to 43% in 2020.
Source: Intuit and Emergent Research via Recode
The gig economy really took off in the Great Recession of 2008 to 2009. Millennials, many of whom were still in college at that time, were locked out of traditional employment opportunities due to downsizing and hiring freezes across different sectors.
Even as the economy recovered, employers were reluctant to add to their payrolls for fear of saddling their balance sheets with fixed costs. Instead, many started using more contract workers who could be relied on situationally, or perhaps brought on to help out on a major project.
Source: Census Bureau Nonemployer Firms Statistics; Nonemployer are contractor and freelancer, used as a proxy for gig economy workers
With traditional employment scarce, the gig economy filled a void. It helped underemployed workers bring in some income and make ends meet. But gigs don’t provide the same financial security that traditional employment does, which is why 91% of Millennial workers say they would prefer a single, full-time job.
Employees or contractors?
For much of the 20th century, workplace laws were built around a full-time employment model.
As a result, contract workers aren’t eligible for most of the rights and benefits of employees, like health insurance, worker’s comp or unemployment insurance. That’s true for insurance coverage too.
Gig workers aren’t even protected by minimum wage laws. A study found that on average Uber drivers make just $3.37 an hour after deducting for gas and the upkeep of their automobiles (though many drivers make much more).
But with the number of gig workers swelling, that could change. There have been a number of legal challenges to this classification from workers who believe they are treated as employees when it comes to their obligations to a platform, but they don’t enjoy any of the benefits that employment bestows.
For the time being, gig companies have been able to fend off workers seeking the status of employees. But a recent trial verdict gives some indication that that could be changing.
The case of Lawson v. GrubHub alleged that the food delivery app treats its drivers as employees because it has control over when and where they deliver food and the fees they’re paid.
The judge in the case found that drivers were contractors. However, the judge noted that current employment law draws a stark distinction between employees and contractors, and gig workers, though they’re more like contractors than employees, don’t fit neatly into either category.
Labor activists have advocated for a third classification, perhaps a “dependent contractor,” who would have the ability to receive some of the benefits of traditional employment.
Understanding the insurance challenges
The distinction between employee and contractor also comes into play when considering insurance.
“The insurance policies, when they were written, did not contemplate these kinds of jobs,” says Lori Lovgren, an insurance arbitrator and owner of Path to Resolution.
Take Uber or Lyft, for example. If a driver who is an employee of a taxi company gets into an accident on company time, the employer’s business insurance kicks in and covers the accident.
But drivers for ride hailing services operate under different circumstances.
“Drivers who drive for them don’t realize that under their private passenger auto insurance, there is a livery exclusion,” says a spokesperson from the National Association of Insurance Commissioners.
Not personal or commercial
Personal insurance won’t cover any accidents that arise from ferrying passengers because most policies exclude commercial use.
What happens if you get into a bad accident driving for Uber and the damages exceed the limit you’re covered for, but your personal automobile insurance doesn’t cover you? Could you be opening yourself to a lawsuit? Could you be facing hospital bills you can’t afford?
Now consider this: Some workers use multiple platforms, performing tasks and renting out their assets simultaneously, creating enormous insurance complexity.
For example, someone might rent out their apartment on Airbnb, their car on Turo, while also assembling furniture through TaskRabbit.
To be fair, Uber and Lyft (and a number of other platforms) do provide some insurance during the times when work is performed. However, it’s not always as robust as insurance carried by an employer, and could still expose workers to liability.
Source: Census Bureau Nonemployer Firms Statistics; Nonemployer are contractor and freelancer, used as a proxy for gig economy workers
Therefore, independent contractors need to take extra steps to make sure they’re covered, investigating what type of coverage is offered through a platform and if they need to supplement it with their own coverage. According to a report by the NAIC:
“Even though the largest [transportation network companies] provide commercial coverage, those policies may not provide the same uninsured/underinsured coverage, medical payments coverage, comprehensive or collision coverage that the drivers had purchased in their personal auto policies. Drivers are often unaware of the extent of the livery exclusions.”
Here are the insurance considerations for the three most prominent gig economy industries: ride sharing, home sharing and on-demand services.
Insurance for ride sharing
Giving rides through apps like Uber and Lyft is an enticing way to earn money for many. Drivers can potentially earn a living with this activity, and consumers like the ability to hail a ride quickly.
But ride sharing has unique insurance risks. Personal automobile policies don’t cover the times when drivers are ferrying passengers around. That’s considered commercial activity.
Claim for damages during these times could be denied. In addition, your policy could be cancelled for these types of activities, which could put you in a high-risk pool, making you subject to higher premiums going forward.
“You don’t want to get caught in a situation where you haven’t been honest about your ride sharing activities and for some reason your insurance finds out,“ says Melissa Neis of Parr Insurance Brokerage in Chicago.
Some coverage, though limited
Uber and Lyft provide some coverage, however, both require drivers to maintain their own insurance. The apps divide coverage into three periods and how much you are covered through them depends on which period of time you’re in:
- Period 1 is when a driver is logged into the app and waiting for a fare.
- Period 2 is when they have accepted a request.
- Period 3 is when a driver has a passenger in the car.
The apps provide primary coverage during Periods 2 and 3, and much more limited coverage during Period 1.
Here’s where things might fall apart: Say you cause an accident while you have a passenger in your car. The app might provide $1 million liability coverage to pay for the passenger’s injuries; the collision coverage would pay to repair your car (minus the deductible).
However, your injuries, such as a broken bone that requires surgery wouldn’t be covered under the app’s policy. And personal automobile insurance wouldn’t pick up the tab either. What’s more, as an independent contractor you aren’t eligible for worker’s compensation if you aren’t able to work due to your injuries.
Home sharing has insurance risks
Renting out a home is a cozy alternative to a generic hotel when you’re traveling. But don’t overlook the insurance gaps there too.
Hosts run the risk that guests might vandalize their property, steal from them or use the property for illegal activities. Even conscientious guests can cause damage to your property.
For example, they might leave a faucet running resulting in water damage to your floors or leave the stove on and cause a fire. Or they might become injured on your property, perhaps slipping on wet bathroom tiles or falling on home gym equipment.
Don’t look to homeowner’s insurance
Your renter’s or homeowner’s policy might cover your tenants for some losses if you only rent out your home on occasion.
However, you may need to notify your insurer in advance or purchase an additional rider that adds this specific coverage. But if you rent out your property routinely, your insurer will consider that activity a business. Your personal policy won’t cover those stays.
“A lot of homeowner’s policies have exclusions about renting out your property,” says insurance broker Neis. “Users of these platforms can’t just assume they’ll be covered by the platform in the case of some sort of loss.”
Airbnb offers “host protection insurance,” which provides up to $1 million in the case of bodily injury or property damage to a guest during an Airbnb stay. In addition, the platform provides coverage for damage to your property through its “host guarantee” program. VRBO and HomeAway provide less coverage and for a fee.
Liability issues from on-demand services too
Another industry that has attracted gig workers is on-demand services such as TaskRabbit, which famously connects customers with workers to assemble Ikea furniture, though the squadron of “Taskers” is capable of many other types of errands and projects.
If a Tasker goes to someone’s home to perform a job and winds up injuring the customer, the worker’s personal renter’s or homeowner’s insurance policy wouldn’t pay for the incident. Again, personal insurance policies don’t apply to business activities. Some apps might provide some coverage for such claims, but not all do. And the claim could be denied or exceed the limits of the coverage.
Do your homework to protect yourself
If you rely on the gig economy for your livelihood (or even just for beer money), take care to understand where the gaps in insurance might be. You might be willing to roll the dice and forge ahead with the coverage the apps provide, but understand that you’re taking a risk.
“If you’re only doing this a couple hours a week but you have another job, the pricing of these [additional insurance] products might be such that the cost of the products eats up what you might make on a part-time basis,” says Lovgren.
Start with an insurance review, looking through the fine print of your policies to understand what circumstances are covered and where you’re vulnerable. Also, consider speaking with an insurance broker who can walk you through your policy.
Additional policies or riders may be needed
Traditional insurance has struggled to figure out how to provide flexible insurance for the gig economy. But some insurers are starting to introduce new policies for ride sharing drivers and people renting out their homes through home sharing. These types of policies are typically offered as riders to existing policies and only in some states. That could add 20% to 30% to your premium, notes Neis.
Also, consider an umbrella liability policy that provides additional coverage beyond your underlying policy’s limits.
For better or worse, the gig economy is transforming the way we work. It’s brought economic opportunity to many, but it also presents challenges. As you’re providing services or receiving them, don’t overlook the insurance gaps. Take steps to protect yourself.