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Before Airbnb, VBRO, and FlipKey made home-sharing a multi-billion dollar business – not to mention a household phrase – hosting guests meant making beds and cooking French toast in the morning. Nobody wasn’t even thinking about purchasing host insurance.
Today, of course, thanks in part to the rise and acceptance of the gig economy as a whole, home-sharing platforms are one of the hottest trends in the tech startup space. The on-demand industry is an attractive proposition for tech leaders and investors alike who see downstream revenue opportunities for micro-businesses, add-on products and services, and entirely new ways of working for individuals and small business owners.
But as an emerging business – which has had its share of ups and downs due to uncertainty in the travel market and other factors – home sharing platforms pose substantial risks for tech leaders looking to launch the next big resource for hosts and guests. This guide helps those offering home sharing platforms a solid understanding of the kind of host insurance you’ll need for this burgeoning industry.
Why Home-Sharing Platforms Need Host Insurance
As with other emerging markets like cannabis, crypto, and blockchain, the world hasn’t quite caught up to the unique needs of cutting-edge technology companies offering completely new products and services. The insurance industry is a perfect example.
Many traditional brokers – except for the most progressive and forward-thinking ones – simply don’t provide the kind of comprehensive policies that protect everything home sharing platforms need coverage for: people, buildings, and the software and hardware infrastructure that fuels all this growth. And that can really add to the frustration, confusion, and risk of launching a new venture.
What’s behind this lag? It’s partly due to the fact that startups are high risk. Traditional insurance companies tend to feel more comfortable insuring established, low-risk businesses that offer products and services that are similar to existing businesses. The reason is twofold:
- conventional businesses present a lower risk for the broker itself, and
- brokers can more easily model an established company’s risk management cost using existing, predictable data.
If you’re opening a familiar business such as a grocery store, car dealership, or another so-called “Main Street” enterprise, insurance company underwriters plug in numbers from similar businesses to evaluate your company’s weaknesses and provide a realistic cost for coverage. In other words, if it worked before, it should work again.
Risk management is infinitely more difficult to do with businesses offering products and services that are completely new on the market, such as home-sharing platforms which have only been around for a few years.
As a hosting business shopping for coverage for your home-sharing platform, it’s critical to find a forward-thinking broker who’s not afraid to take risks on new ventures – and who will, in fact, be your champion. Only the most vanguard insurance companies have access to the types of data-modeling tools needed to insure emerging businesses.
It’s really true: you need an expert who has in-depth knowledge of the kind of business you’re starting so they can properly scope your coverage needs and use accurate data models, leaving no gaps that make you vulnerable to claims.
Why Tech Startups Shouldn’t Sleep On Host Insurance
There’s another challenge facing home-sharing platforms seeking host insurance – and it’s based on a related misconception about startups. Given their high failure rate, some folks espouse the view that new ventures should focus on tangible bottom-line impacts, such as cash flow – and don’t get why businesses need insurance in the first place.
The thinking is that the money that would go toward insurance is better spent on funding the business. Again, this argument is predicated on an outdated idea of how insurance companies have traditionally been run – and it actually neglects the powerful influence a fully insured startup has on its investors, customers, and employees.
Just as home-sharing platforms have disrupted the hotel industry, online-only insurance companies are rewriting the rules, too. When you go with a fully digital insurance company, you’ll discover that they’ve dispensed with a lot of the overhead traditional insurance companies dedicate toward administrative and other tasks that simply don’t exist in the online busines world.
This kind of lean-operating style allows online insurance brokers to offer surprisingly affordable rates – even to high-risk startups. And even if you’re bootstrapping it, the trust and respect you’ll engender by being insured will pay dividends in the long run.
How Tech E&O Insurance Protects Your Technology
If you have a home-sharing platform or are running a business that ties into an existing service such as Airbnb or VRBO, you may be familiar with those companies’ insurance-like coverage for hosts. Mainly focusing on liability protection – such as property damage or physical harm to a guest – both Airbnb’s AirCover and VRBO’s $1M Liability Insurance provide protection automatically.
The products are free and act as primary or supplemental insurance if anything goes wrong with your short-term rental. Having this basic liability coverage allows you to allocate budget to other policies that are more specialized to your particular business. Which is great – because though liability insurance is necessary, it’s actually only a portion of what home-sharing platforms need to be insured for.
In fact, your company’s software itself is vulnerable to risks, including customer claims of inadequate work or negligent actions as well as cyber hacks. What you need to protect you against these types of claims are products designed specifically for technology companies, including technology errors and omissions insurance and cyber liability insurance. Though many people confuse these two types of coverage because they both cover cyber risks, they cover different areas.
What’s the Difference Between Tech E&O and E&O?
Tech E&O picks up where traditional E&O, known as professional liability insurance, leaves off. Tech errors & omissions insurance covers risks that are related to losses of a third party arising from your company’s product or service’s failure to perform as it was expected or meant to perform. In other words, if someone loses money, gets hurt, or is otherwise wronged as a result of problems in your software, you’ll need to make amends.
On the other hand, cyber liability covers first and third-party financial losses resulting from data breaches and other cybercrimes. These two policies, in addition to a business owners policy (BOP), general liability, and other startup needs should provide ample coverage against claims.
As a new business in an emerging market, protecting yourself and your company is, without a doubt, the most important investment you can make. Though traditional insurance companies haven’t quite kept pace with the evolution of home-sharing platforms and the particular insurance needs of host businesses, online-only brokers are making promising strides.
Digital insurance companies are disrupting old working models with breakthrough offerings at prices startups can afford. In fact, with turbulent times practically guaranteed to come your way, you owe it to yourself to get equipped with a nice, soft landing.