According to a new study from the Insurance Institute of Canada (IIC), the sharing economy presents both an opportunity and a threat to the insurance industry. In the U.S., the sharing economy has already created 17 companies valued at $1 billion or more, including Uber and Airbnb. Some 27% of the U.S. population participate in this type of consumption. Now, with millions of Canadians who use the sharing economy seeking unconventional coverage as a result, innovative startups are threatening Canadian insurers.
See also: Opportunities in the Sharing Economy
Opportunity – Widespread Use
Forty-five percent of Canadians report being interested in sharing underutilized assets to generate income. In Montreal alone, Uber provides roughly 300,000 rides per month. This means that new types of insurance policies are needed to support the emerging car-sharing and home-sharing industries. For example, because the sharing economy often includes short-term asset sharing, there is an opportunity for insurance companies to provide unconventional coverage options.
Some insurers are already creating products to satisfy this demand. For instance, Aviva Canada has a policy for ride-sharing drivers, and Square One Insurance developed a product specifically for Airbnb hosts.
Threat – New Competition
All of this new opportunity is fueling the creation of nimble and mobile-friendly insurtech startups such as Prvni Klubova, Lemonade, and Metromile. These companies provide insurance in innovative ways using mobile and AI-driven technology. Companies like these three are potential threats to traditional insurers in Canada. In fact, Lemonade has already gained more than $59 million in funding and is quickly becoming a major player in the industry.
According to a recent study, nearly half of traditional insurance companies are concerned that as much as 20% of their businesses could be lost to new insurtech players. If insurers fail to adapt to new competition, these fears could become reality. And insurance carriers are not the only companies experiencing disruption. Insurance brokers also face competition from new platforms such as Friendsurance.
There are two options for traditional insurers to consider when it comes to dealing with swift insurtech startups — compete or partner. Competition has been attempted by a number of traditional insurers, such as Economical Insurance, who launched Sonnet Insurance, an online-only insurance provider. However, due to the rapid pace of emerging technologies, head-on competition presents many challenges. Launching an insurtech solution from the ground up is resource-intensive, especially for companies who are not as familiar with a technological terrain.
See also: Sharing Economy: The Concept of Trust
Partnering can be a more productive endeavor. Many traditional insurers have recognized this and have already formed key partnerships. For example, Intact and Aviva Canada have partnered with Uber. Intact is also a partner with Turo and an investor in Metromile. Additionally, Northbridge has partnered with RideCo, a Waterloo-based ride-sharing startup. Through this partnership, ride-share drivers can receive as much as $1 million in third-party liability coverage.
Sharing economy valuation is projected to top $335 billion by 2025. Its impact on the Canadian insurance market will only continue to grow. While many Canadians will benefit from the expansion of the sharing economy, traditional insurance companies will need to adapt in order to keep up with new competition from insurtech newcomers. As a result, we are likely to see more partnerships between traditional insurers and insurtech companies in the years to come.