September 29, 2016
Why to Embrace the Sharing Economy
by Greg Smith
Many people don’t realize that by, say, working as part-time drivers, they’ve become entrepreneurs — and entrepreneurs need insurance.
The sharing economy has created unprecedented opportunities for making money. Airbnb has inspired people to turn their spare rooms into cash machines, and Uber enables anyone with a decent car to earn extra money as a modernized taxi driver.
The barriers to generating additional income have essentially vanished because of these platforms. But many people don’t realize that by renting out their houses or working as part-time drivers, they’ve become entrepreneurs — and entrepreneurs need insurance.
An Unsatisfactory Status Quo
The insurance industry hasn’t quite caught up to the sharing economy. Platforms such as Airbnb, HomeAway, RelayRides and HomeDine have democratized the hotel, transportation and dining industries. These services allow people to connect directly with one another to borrow cars, rent rooms and share meals. But participants haven’t just circumvented the system through these products; they’ve also exposed themselves to significant liabilities.
Homeowners who rent out rooms or their entire houses can’t rely on their homeowners insurance to cover damages caused by renters. Those policies only apply to the owners’ risk profiles, not their guests. Owners can take out landlord policies, but those are extremely costly for someone who only rents out a room a few times a year.
Many ride-sharing drivers find themselves in a similar conundrum. Because their cars function as both personal and professional vehicles, they’re stuck between two insurance options. Personal insurance won’t necessarily apply if something happens while they’re on the job, but commercial policies may be too costly and broad for their needs.
See also: New Way to Insure the ‘Sharing Economy’
Companies like Lyft, Uber and Sidecar provide some coverage, but many drivers remain vulnerable. Some states and insurers have begun issuing ride-sharing-specific policies, which is a step in the right direction; however, we still need a more robust solution.
The same goes for insuring new businesses. Uber and Airbnb are valued at more than $60 billion and $30 billion, respectively. They can invest in costly insurance policies and can afford to take risks, but smaller startups simply don’t have the capital for the necessary coverage in the sharing economy. Given the right circumstances, these smaller startups could transform the market and spur economic development. Insurance providers must account for their needs as well — and that’s a win-win situation. The more protection a provider offers, the more stature and clients it will attract.
Insurance for the Future
Insurers have been reluctant to create products for the peer-to-peer market because the sharing industry operates in murky legal areas. As sharing economy businesses grow, questions arise about employment laws, zoning and health and safety concerns. Providers want to see how these regulatory issues play out before getting in the mix.
New policies will need to account for risks such as accidental deaths, rape, violent crimes, theft and invasions of privacy. Developing insurance plans for vendors in this field is new territory, and few want to take the first steps.
Many underwriters prefer to pursue traditional business instead of the “more conceptual” circumstances inherent to the sharing economy. But someone has to take on these cases. Insurers that have the foresight and fortitude to navigate this area will see long-term benefits as these companies become more popular.
Homeowner and auto insurance brokerages have already seen a dip in their premium volumes because of the peer-to-peer economy. Providers must steel themselves against disruption, but they needn’t approach it from a solely defensive standpoint.
Here’s how insurance providers can win in the sharing era:
1. Embrace opportunities for innovation. The sharing economy is in its infancy and will mature rapidly in the next several years as digital platforms like Uber generate an ever-growing amount of user data, allowing for more personalized insurance solutions. Opportunities to insure a single trip or flight will only increase as insurance providers learn to take advantage of the large amounts of data being collected.
Providers would be wise to ride this wave of innovation by accommodating the market’s changing needs. Instead of waiting to see what their competitors will do, insurance companies should develop new risk profile algorithms so they cater to larger audiences.
2. Anticipate client needs. As more people participate in home- and ride-sharing platforms, they’re going to have questions about how these businesses fit within their policies. Agents and brokers must be prepared to address consumers’ concerns and provide solutions to coverage gaps. Consumers recognize the importance of risk management, especially when it comes to their homes and finances. Insurers that create products for this new market will set the industry standards and earn their customers’ loyalty.
3. Brace for long-term impact. Some experts speculate the sharing economy is a millennial fad that won’t seriously affect the insurance industry. But others predict it will be worth $335 billion globally by 2025. Providers should bet on the future and position themselves to grow with the market.
First, providers should focus on customer journeys, engagement and interaction by optimizing the user experience, investing in digital and embracing disruption. Because learning from the disruptors is one of the best ways to ignite change in a large organization, invest in startups and open up access to employees.
Finally, adapt an agile mindset. Test and launch minimum viable products by shortening development cycles and incorporating the customer into the process.
Disruption is never painless, but companies can lessen the negative impact by investing in new products now.
See also: How to Insure the Sharing Economy
The sharing economy isn’t going anywhere. The regulatory questions will be ironed out because the market demands it. Consumers crave the freedom of being able to book unique, private accommodations by logging in to an app. They enjoy the personalized features that tell them who they’re renting from, who their driver is and who lives nearby and is willing to cook dinner for them.
Peer-to-peer products remove the middlemen. People will not yearn for the days of more bureaucracy. If anything, they’ll demand even more direct, streamlined sharing options. Insurance providers should read the writing on the wall and heed its warning. The time to innovate is now.