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April 5, 2016

Insuring a ‘Slice’ of the On-Demand Economy

Summary:

The addressable market is huge: every Uber and Lyft driver who does not have the requisite insurance or doesn’t have sufficient insurance.

Photo Courtesy of Davide D'Amico

In our emerging on-demand economy, Blue Ocean strategy will abound for P&C and life and annuity (L&A) In this post, I will focus on the Blue Ocean strategies that are needed in the P&C insurance industry.

The essence of Blue Ocean strategy, as discussed in W. Chan Kim’s and Renee Mauborgne’s 2005 book Blue Ocean Strategy, is “that companies succeed not by battling competitors but rather by creating ‘blue oceans’ of uncontested market space.” Society’s expanding on-demand economy is generating newly uncontested P&C insurance markets.

These new insurance markets are being formed from the blurring of consumer and corporate exposures that have historically been considered separate exposures by insurance companies, intermediaries, regulators and customers.

My objective in this post is to discuss the emergence of a new insurance player, a licensed insurance intermediary, that offers insurance that the Transportation Network Company (TNC) drivers—specifically Uber and Lyft drivers—should purchase to protect themselves, their ride-share vehicles and their passengers.

TNC drivers have insurance requirements for all three time periods

From the moment they “tap the app on” to the moment they “tap the app off,” Uber and Lyft drivers generate a fusion of personal and commercial automobile insurable exposures. The fused automobile insurable exposures are in play throughout three three time periods during which drivers need to protect themselves; their personal vehicles being used as ride-share vehicles to pick up, transport and drop-off their passengers; and, of course, their passengers.

The three time periods are:

  1. Time Period 1: This period begins when an app is turned on or someone logs in to the app but when there is no ride request from a prospective passenger. The driver can be logged into Uber, Lyft or both, but the driver is waiting for a request for a ride.
  2. Time Period 2: This period begins when the driver is online and has accepted a request for a ride but has yet to pick up a passenger.
  3. Time Period 3: This period begins when the driver is online and a passenger is in the car but has yet to be dropped off at the destination.

No, your personal automobile insurer probably does not cover the ride-share

It would be foolhardy (at best) and extremely costly (to the ride-share drivers) to assume the insurance policy that covers the driver’s personal automobile would also cover the exposures the driver generates as a TNC driver throughout the three time periods.

However, there is an expanding list of personal automobile insurers that:

  • cover time period 1 for ride-share drivers—TNC companies do not provide coverage during this period; and
  • will not cancel a driver’s personal automobile insurance policy if the driver tells the insurance company she is using the vehicle as a ride-share vehicle while driving for Uber or Lyft.

But the fact remains that there is a paucity of insurers that cover the personal and commercial automobile risks for people using a vehicle as a ride-share vehicle during all three time periods.

Further, drivers could very well find themselves with insufficient coverage even if the TNC provides coverage during time periods 1 and 2.

The paucity represents Blue Ocean uncontested market opportunities

The opportunities are the drivers’ need for insurance coverage to:

  • the fullest amount possible given the requirements of each state and each driver’s situation (i.e. the cost to repair the vehicle will differ by vehicle and state where the driver operates)
  • fill the insurance gaps between 1) the driver’s personal automobile coverage; 2) what Uber or Lyft provide during time periods 2 and 3; and 3) what each state requires.

Simply put, depending on the type of vehicle the driver is using as the ride-share vehicle and the state where the driver is operating, it is entirely possible that whatever insurance the TNC provides—even if it meets the minimum requirements of the state—is inadequate to financially help the driver (Note: this is not meant to be an exhaustive list of financial requirements):

  • remediate/restore the ride-share vehicle to its pre-damaged condition;
  • pay for physical rehabilitation for the driver, passengers or pedestrians who are injured in an accident caused by a ride-share driver or a third-party;
  • pay for property remediation caused by the ride-share driver
  • pay the lawsuit of ride-share vehicle passengers who claim the driver attacked them;
  • pay for the lawsuit of ride-share drivers who claim a passenger attacked them; and
  • make payments in lawsuits brought by passengers or pedestrians injured or killed, or owners of property destroyed or damaged by the ride-share driver.

Slice emerges to provide hybrid personal and commercial P&C insurance

Slice Labs, a new player in the insurance marketplace based in New York City, is emerging to target this specific uncontested market space by providing Uber and Lyft drivers with access to hybrid personal and commercial automobile insurance for all three time periods. In a March 29, 2016, press release, the company announced it secured $3.9 million in seed funding led by Horizons Ventures and XL Innovate.

I truly appreciate and personally respect Slice for taking the time to enter this Blue Ocean market space in the “right way” by first becoming licensed in the states where the company wants to operate. Currently, Slice is licensed to conduct business for Uber and Lyft drivers in seven states: California, Connecticut, Iowa, Illinois, Pennsylvania, Texas and Washington.

Getting licensed

Moreover, Slice’s business model is to operate as a licensed insurance intermediary with underwriting and binding authority. The intermediary has become licensed as insurance agents for personal and commercial P&C, excess and surplus (E&S), and accident and health (A&H) insurance. Slice also has managing general agency licenses in the states where that license is required to sell the hybrid insurance coverage. Slice is taking this path of licensure because it is using a direct model and doesn’t plan to distribute through agents (intending instead to distribute through the TNC platforms and directly to the drivers).

Further, because this is a hybrid personal and commercial automobile insurance opportunity, Slice is designing and filing the requisite policy forms in each state where it wants to operate.

Slice is underwriting the risk, but it is not financially carrying the risk. For that, Slice will be working with primary insurers and reinsurers. Slice has not yet reached the point where it can identify which (re)insurers are providing the capability. Obviously, without having the insurance financial capacity, Slice can’t operate in the marketplace (unless Slice plans to use its seed financing and future investment rounds for that purpose—assuming that is allowed by each state where Slice wants to operate).

It is also important to know which (re)insurers are providing the capacity. I hope Slice releases that information very soon.

Conducting business with Slice

A driver purchases the hybrid policy by registering on the Slice app (registering is the process of the driver receiving and accepting the offer to apply for insurance), which triggers Slice’s underwriting process. At the completion of the underwriting process, Slice generates and sends the driver a price for the policy that will cover the driver’s fused personal and commercial automobile insurance requirements for each cycle of turning on and off the Uber or Lyft app.

Once the driver purchases the policy, Slice sends the driver the declaration page and policy in a form required by each state. Slice will send the DEC page and policy digitally if that is allowed by the state. Moreover, the Slice app will show the proof of insurance, the time periods the insurance policy is in effect and the amount of premium being charged during the time period from “app on to app off.”

If there is a claim, the driver will file the first notice of loss through the Slice app. Although Slice plans to work with third-party adjusters to manage the claim process, the driver will only interact with Slice until the claim reaches a final resolution.

What do you think?

Will this uncontested market space remain uncontested for very long? I sincerely doubt it. The addressable market is huge: every Uber and Lyft ride-share driver who does not have the requisite insurance or doesn’t have sufficient insurance (the two are not necessarily the same animal).

What do you think of Slice, of this market opportunity and of other on-demand economy opportunities that reflect a fusion of personal and commercial insurance exposures?

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About the Author

Barry Rabkin is a technology-focused insurance industry analyst. His research focuses on areas where current and emerging technology affects insurance commerce, markets, customers and channels. He has been involved with the insurance industry for more than 35 years.

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