Ten years ago, a couple visiting New York City would have rented a hotel room or hailed a taxi. Today, that same couple has a wider set of options to choose from, including Airbnb or HomeAway for vacation rentals, and Uber or Lyft for a ride. These companies, which have now become household names, offer services on peer-to-peer platforms that have heralded the era of the so-called “sharing economy.”
The term “sharing economy” first appeared during the early 2000s and refers to an economic model that emphasizes collaborative consumption of goods and services. By providing platforms to facilitate transactions, large companies such as Uber and Airbnb have opened a floodgate of opportunities for people to earn additional income, or recast their career path.
However, these opportunities present their own set of risks for the participants. Most insurance policies for homeowners, renters, or personal vehicles, for instance, generally do not cover regular commercial activity, such as renting your home or using your personal vehicle to become a driver. These providers may offer their participants limited coverage, but it may not be enough. When there is a loss not sufficiently covered by the providers such as Airbnb, individual policy holders may be left to assume the risk, which could be substantial.
Not surprisingly, new insurance entrants have stepped in to bridge the gap to offer more complete coverage for sharing economy service providers. A prominent example is New York-based Slice, which offers homeowners in 20 states an on-demand insurance solution for their home-sharing rental properties. Slice recently began testing its pay-per-use product aimed at drivers, offering their service on ride-sharing services like Uber and Lyft. UK-based SafeShare has developed a blockchain-based insurance product for sharing economy platforms. It teamed up with office-space sharing startup Vrumi. Together, they provide coverage to owners facing losses related to damage and theft by renters.
Challenges for the Sharing Economy
New technology must nimbly mirror the speed with which sharing economy products—and the governing risk factors—change. Agility is crucial. And technology solutions that support traditional high-cost insurance products might not be the best fit for low-cost products for the sharing economy. However, the availability of detailed user data combined with adoption of technologies like IoT, advanced analytics, machine learning, etc. will enable sharing economy platforms to come up with insurance products that are better targeted and priced for their users.
Increasingly, sharing economy platforms are collaborating with traditional insurance players. For example, Airbnb has partnered with Lloyd’s of London to provide the Host Protection Insurance program that aims to extend primary coverage for Airbnb hosts and landlords. But the traditional insurance players’ current underwriting processes and operations have to be modified to support instantaneous risk assessment and pricing, while at the same time avoiding cost overruns.
In addition, sharing economy platforms and traditional insurers can only effectively collaborate by providing a seamless user experience. Customers, especially Millennials who have embraced the sharing economy platforms, want a user experience with digital touchpoints that allow convenient, instantaneous transactions across multiple channels and devices. Sharing economy platforms typically use technologies that are scalable in nature, such as cloud computing, and are digitally oriented in tune with the users of the platforms. Traditional insurers, on the other hand, rely on legacy systems that rarely match the speed, agility, and flexibility required by a digital business. It is incumbent upon the insurer to digitize core processing capabilities to ensure that they can offer a user experience that is on a par with the nimble sharing economy platforms.
Finally, the regulations surrounding the sharing economy still need to be clearly defined. Lawmakers have to contend with how to regulate non-traditional businesses that sometimes only consider themselves as mere platforms for services and transactions, thereby absolving themselves of risk or responsibility when a problem arises. Additionally, the data the platforms own or host could potentially be subject to abuse in a variety of scenarios—from the platforms themselves, exercising active discrimination against a subset of users to the government getting access to detailed user data as part of mandatory disclosures against the customers’ wishes.
Insurers have an immense scope to boost revenue by developing products specific to the sharing economy, across verticals like ride-sharing, home and office space sharing, and on-demand workforce. Reputation, a consistent user experience, and product changes to match the needs of a constantly evolving clientele will act as differentiators. With consumption of these services centered on the web, smart phones, and other internet-enabled devices, technology will be a common presence across the value chain of shared economy offerings. How successful and influential these services will be is inevitably linked to how well they leverage technology and skillfully navigate the challenges associated with it.
Ian Campos is Executive Vice President and Global Insurance Services Leader at Capgemini Financial Services SBU. The views in this article are the author’s and do not reflect the views of Capgemini. Nor does any company or service mentioned represent an endorsement.