As recently as last year, it wasn’t clear that RelayRides’ business made financial sense. The company, which lets strangers rent one another’s cars, was growing — acquiring rivals like Wheelz and expanding into new markets. It was charging its users a healthy vigorish; car owners paid the company 25% of every rental fee, while renters kicked in an additional 15%. (Most digital marketplaces only take a total of 10-20% of every transaction.) And yet, the company was still losing money on every transaction. The culprit? Insurance.

“We were paying punitively high rates,” says CEO Andre Haddad. “They had to come down, otherwise we never would have been able to operate properly.”

Insurance represents both the lifeblood and the biggest threat to the sharing economy. As I explore in this month’s WIRED cover story, companies like RelayRides — or Airbnb, Lyft, or any other sharing company — depend upon its customers’ willingness to trust one another. These businesses have devised numerous mechanisms to engineer that trust, but perhaps no one feature has been as important as insurance.

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