August 16, 2018
How Sharing Economy Is Reshaping Insurance
by Nigel Walsh
For users, the insurance protection afforded by a sharing platform is a key consideration, in addition to the earning potential on offer.
The sharing economy is an economic system based on the use of technology to share assets or services between parties (individuals or organizations). Participants in the sharing economy use it because it can provide a more flexible and affordable option than some other economic systems. In this way, the sharing economy makes goods and services available to those who would not otherwise be able to access them. Much has been discussed about how the fast-growing web of consumer-to-consumer transactions that is the largest component of the sharing economy presents new opportunities for the insurance industry. The consensus view among insurers is that this potential market is large, growing quickly and under-developed yet tricky to insure with traditional products as it blurs the boundaries between personal and commercial lines. In April 2018, Lloyd’s published Sharing risks, sharing rewards: Who should bear the risk in the sharing economy? The report contained the following key findings:
- Consumers in the sharing economy expect to be protected from the risks of transacting
- Consumers and sharing platforms have opposing views on who bears responsibility for this protection
- There is a significant untapped market of potential sharers who would be more willing to participate if protected by insurance
Maturer platforms in the sharing economy have established risk management programs and are working in partnership with the insurance industry to develop them further. For the many smaller platforms that make up the vast majority of platforms by number, risk management is at an earlier stage of development. The insurance industry has an important role to play in supporting platforms of all stages of maturity. This study aims to promote dialogue between platforms and insurers and, building on the previous report, has systematically analyzed the sharing economy to understand where insurance can support the growth of the sharing economy while also broadening the geographic scope of research.
This study, carried out by Lloyd’s, the world’s specialist insurance and reinsurance market, and Deloitte scanned the sharing economy for emerging insurance models, conducted a broad review of business and academic literature, surveyed 8,527 consumers across the U.S., China, Germany, France, the U.K. and the UAE, interviewed more than 20 subject matter experts, conducted a platform-only online questionnaire and held two workshops with representatives from sharing economy platforms, innovation experts and insurance practitioners.
The consumer survey data in this report is not an extension of Lloyd’s previous report as the sample, time period and questions were different.
The objective of this report is twofold:
- To provide sharing economy platforms with an overview of key risks and the insurance solutions available to mitigate them.
- To help the insurance market further understand how this sector of the economy needs new insurance products and where the most compelling opportunities for product development are located.
In summary, this research found:
- Sharing is widespread: Approximately 500 million people across the U.S., China, Germany, France, the U.K. and the UAE have shared assets/possessions or services in the past three years to earn a profit; more than 680 million in these markets consumed them in the same period.
- Currently, a number of platforms have mechanisms to protect users, ranging from transaction-embedded insurance to guarantee schemes. For users, the protection afforded by a platform is a key consideration in addition to the earning potential on offer.
- Our market scanning indicates that an increasing number of sharing economy platforms provide insurance to their users that is automatically embedded within each transaction, with 57% of adults who have sold services or lent products in the sharing economy in the past three years being insured by transaction-embedded or personally owned cover.
- Of those selling services and sharing assets, 37% of home sharers took out or upgraded a buildings or contents policy prior to sharing, and 49% of ride sharers took out a new motor policy or upgraded an existing one. Among delivery drivers, the figure is 37%, and 20% of freelancers took out or upgraded liability insurance before providing their services.
- In addition, our analysis of the consumer survey identified pockets of high demand for insurance among four specific consumer segments. These groups represent product development opportunities for insurers, brokers and other service providers.
- This study has identified numerous emerging models of sharing economy insurance; some combine elements of well-established commercial and retail covers in a static policy, and others provide more dynamic cover that fluctuates more in line with underlying risks.
- Partnerships with sharing economy platforms form a key distribution channel. In addition to offering an opportunity to reduce customer friction in the insurance purchase process by embedding it within transactions, distribution via platforms offers greater potential for customer access, risk selection and pricing power than distribution via the open market.
- Insurtechs are at the forefront of innovating sharing economy products and services and to date have focused on customer-facing links in the value chain.
You can find the full report here.
This article was written by Nigel Walsh and Peter Evans.