Imagine this: John* bought a vintage one-bedroom apartment at the heart of a bustling European city. Having achieved his lifelong dream, he furnished it lovingly with a designer sofa, pendant lamps, the works. However, when his mother took ill, John had to spend a lot of time at her home 20 kilometers away, often overnight. So he decided to rent his apartment out on days he was away. The online home-sharing platform was a blessing – easy, fast and equipped with an option to buy insurance for any damages by tenants.
John was lucky with tenants. They gave him no reasons to trigger a claim, always leaving his home in a good condition.
Across the hall, Joe* was also a lessor. An owner of two apartments in the city, Joe rented out one for short stays. On a warm evening, the two neighbors bonded over beer. John told Joe about the home-sharing platform, prompting the latter to sign up. But unlike John, Joe reported several damages by tenants over one year, filing insurance claims.
On the other side sat the insurance company. To offer a customer-friendly service, the insurer had a simple process in the beginning – claims under a certain amount were settled via a straight-through process and the payout was instantaneous.
The process benefited all lessors on the platform. But when Joe reported more incidents than usual, claims handlers visited his apartment to verify the legitimacy of the claims. While some were legit, some others were found to be fraudulent. Joe’s insurance contract was cancelled and he was barred from using the platform. However, he was not the only one to suffer the consequences of his actions.
Such events impact an insurer’s loss ratio and the company raised premiums also for honest customers such as John, who had little to do with Joe beyond a friendly beer.