The “sharing economy” is a marketplace that uses online platforms to connect the supply and demand of underutilized assets or services. The term encompasses peer-to-peer (e.g., Uber, AirBnb and TaskRabbit), business-to-business (e.g., Yardclub), and business-to-crowd (e.g., WeWork) participation, and it is spreading across industries. There are platforms facilitating the exchange of industrial equipment, medical equipment, space in warehouses, trucking/logistics, home goods, sporting goods, parking spaces, finance/lending and renewable energy, among many others.
The global sharing economy is expected to grow from the estimated $15 billion in 2014 to $335 billion by 2025. One study found that over 86.5 million adults in the United States will participate in the peer-to-peer sharing economy in the year 2021 alone.[1]
The ever-expanding sharing economy operates within the framework of an insurance industry that is constantly adapting to new technologies and risks. Naturally, this evolution comes with opportunities and challenges. Carriers around the world are developing solutions to these new risk management needs. What follows is a non-exhaustive overview of the opportunities, challenges and solutions for traditional property and casualty carriers in the U.S. sharing economy marketplace.
Opportunity for Insurers in the Sharing Economy
This year, Lloyd’s of London and Deloitte published findings from their consumer research study evaluating the interplay between the sharing economy and the insurance industry.[2] Two things are clear from the research: the opportunity for insurers to tap into new revenue streams is significant and access to insurance drives growth for sharing platforms.
According to the study, between 2015 and 2018, in the United States alone, 52 million people will have shared assets, possessions or services with consumers. However, only 8 percent of the U.S. respondents reported participating in the supply-side of the sharing economy (i.e., providing a product or service), and 49% of respondents reported never being on the demand-side (i.e., buying a product or service).[3] In other words, the untapped market is huge. According to the Lloyd’s/ Deloitte study, a major barrier to market participation is perceived risk.
For instance, on the supply-side, 39% of U.S. respondents were put off by the risk of assets being damaged, and 40 percent were concerned there are not sufficient safeguards in place for participants if something goes wrong.[4] But 66 percent of U.S. respondents not participating in the sharing economy would be more likely to share an asset or offer a service if they knew they would be protected by insurance.[5] And of those U.S. respondents already sharing an asset or service, over 70 percent strongly believed that revenue would increase if the platform offered insurance.[6] In spite of that belief, fewer than half of supply-side participants reported obtaining new or upgraded insurance.[7]
Despite the opportunity for growth, the traditional insurance industry has struggled to keep pace with the risk management needs arising out of this rapidly evolving marketplace.
Challenges in Insuring Risk in the Sharing Economy
In many ways, insuring risk in the sharing economy is familiar ground for traditional property and casualty insurance companies. Participants want to be protected in case of property damage, business interruption and liability. Vacation rentals and taxi services are nothing new. However, there are new inherent risks that must be considered:
More Cooks in the Kitchen
For instance, where traditional transactions were binary (between a buyer and seller), in the sharing marketplace, there are new relationships between the buyer, seller and the new stakeholder: the platform itself. Yet another stakeholder is added to the mix when business entities (commercial property owners, restaurants) team-up with a platform to provide products or services to a consumer (such as renting commercial space or delivering food). If something goes wrong, who is financially responsible? Who has an insurable interest in the product or service?
Blurred Lines
Traditional insurance is generally divided into personal and commercial product lines. What happens when those lines are blurred, as when one uses their asset for both personal and commercial purposes? It can often result in gaps in coverage, such as the common homeowner’s coverage exclusion for use of a residence as a rental property.
Risky Businesses?
The insurance industry relies on data, amassed over time, to create risk profiles and accurately price policies, but the desired data is not often available with new ventures. The founder of Turo (a peer-to-peer car-sharing alternative to rental cars) recalled his efforts to obtain insurance when launching the company in 2009:
[One carrier] strung us along for six months and then they said, ‘We really want to write this policy but we just need some data so why don’t you come back after six months of operations and we’d be happy to take a look at this.’ For us, that was really not helpful at all and they should have told us this six months ago. How are we supposed to get the data if we can’t operate without insurance? We didn’t go back to them. If you don’t take a chance you lose the business.[8]
The industry has evolved since that time. Carriers are increasingly responding to the myriad challenges to take advantage of the opportunities available in the now mainstream sharing economy.
Responding to Opportunity in the Sharing Economy
Partnering with the Platform
Mature platforms, those that were at the front lines of engagement with the insurance industry and regulators, provide insurance (and insurance-like) products to their users automatically.
For instance, AirBnb offers a “Host Guarantee” for property damage caused by guests of up to $1 million and “Host Protection Insurance” liability coverage of up to $1 million in excess of the host’s primary coverage. The cost of these products is included in Airbnb’s rental price. Both are underwritten by Lloyd’s syndicates.
Uber automatically provides at least $50,000 in coverage for the driver’s liability for bodily injury to one person, $100,000 per each accident, and $25,000 for property damage caused to others during the period beginning when a driver logs into the app until the driver accepts a trip. From the time the trip is accepted, until the trip’s conclusion, Uber provides primary liability coverage in an amount of at least $1 million per accident and at least $1 million of uninsured/underinsured motorist coverage. The insurers that provide Uber’s automatic coverage vary by state due to differences in local laws, but they include Aon, Progressive, and Farmers Insurance.
Personal-service sharing platform TaskRabbit also provides automatic coverage to its service providers. Their insurance product, the “TaskRabbit Happiness Pledge,” provides of up to $1 million for property damage or bodily injury. It also insures losses due to theft for up to $10,000. TaskRabbit itself covers the premiums and deductible of the insurance. TaskRabbit’s current insurance partner(s) is unknown.
Other platforms have partnered with insurance carriers to offer optional coverage for platform users. For example, Liberty Mutual partnered with Turo to provide $1 million in liability coverage to protect car owners against lawsuits for injuries and property damage. If a Turo host (owner) is using his or her car for personal use, the owner’s personal insurance coverage applies. Once the car is being delivered to a Turo renter or is being used by a renter, Turo’s commercial insurance coverage kicks in (if the host/owner does not opt out of this coverage). Turo renters have the option to purchase insurance from Turo when they rent a vehicle — much the same way they would from a standard car rental company.
Platforms may also partner with an insurer by acting as a distribution outlet, referring or directing users to an authorized insurer or agent. In this case, the contract would be between the individual consumer and the insurance company, not the platform. WeWork is one such platform utilizing this approach.
WeWork provides scalable shared office workspaces for entrepreneurs and small businesses by offering several flexible membership plans. The “Hot Desk” plan gives a member access to an open desk in a common area and does not require the member to carry insurance. However, the membership agreements for “Dedicated Desk” and “Private Office” plans require members to have general liability (for common areas and offices) and property insurance coverage (to cover business interruption and members’ belongings). Per the platform, “If a member needs an insurance broker to assist with these issues, they can seek assistance through the WeWork Member Network.”
Products Offered Directly to Users
Some carriers have responded to the sharing economy by tweaking existing products, often through endorsements. Erie Insurance was early to offer an insurance product to ridesharing drivers, essentially taking their personal auto business-use endorsement and removing the livery exclusion. Farmers Insurance Group launched a ridesharing specific endorsement to their personal auto policy soon thereafter.[9] Allstate may be the most recent carrier to join this market. It provides coverage for when an Uber driver turns on the app to begin accepting rides through the time when the trip ends.[10]
Allstate was the first major U.S. insurer to position itself in the home-sharing sector, offering a product to add to a homeowner’s existing policy intended to fill in gaps in personal property protection, which it offers for $50 per year. Liberty Mutual also offers added coverage which extends a homeowner’s current policy when they share their home for more than 31 days of short-term rentals.
Some carriers are designing entire policies specifically for users of sharing platforms. For instance, Proper Insurance (a coverholder at Lloyd’s) offers a home-sharing policy designed to replace a typical homeowners or renters policy for frequent supply-side participants. For a flat premium, the policy provides $1 million in commercial general liability, $1 million in personal liability, building damage coverage, personal property coverage and lost income.
Teaming with Insurtech Startups
When insurtech startups emerged several years ago, some predicted they would entice customers away from traditional insurers and gain market share. “Now the talk-and increasingly the reality-is about startups and insurers working together to create meaningful partnerships.”[11] Traditional insurers have deep knowledge and experience in this highly regulated industry, as well as the capital necessary to underwrite desired policies. On the other hand, insurtech startups are more agile, have access to new consumer data, and have technology that increases efficiency. Thus, some large insurers, including Allianz, Munich Re, Swiss Re and Liberty Mutual, are heavily investing venture capital funds in new technologies and startups.
Trōv, a leader in insurtech, is an on-demand insurance platform that lets users buy insurance for single-items against loss, theft or damage for a desired amount of time. Trōv, which already successfully launched in the U.K. and Australia, started its U.S. rollout in July 2018.[12] Regulations are part of the reason Trōv has only recently launched in the U.S., despite being based in San Francisco. Munich Re provides underwriting capital and insurance licensing for Trōv in the U.S.
Munich Re also invested in Slice Labs. Slice provides a smartphone-based solutions to offer pay-per-use insurance for sharing economy workers and providers. It offers a policy for Uber and Lyft that covers drivers from the time they turn on the rideshare application until they turn it off. It also offers a product for Airbnb hosts and acts as primary coverage in case of property damage. Unlike Airbnb’s automatic coverage, there is no requirement to attempt to collect from the guest or the host’s homeowner’s policy.
The sharing economy brings compelling opportunities for development in the insurance industry. Traditional carriers have numerous entry points into the marketplace through the platforms, consumers and insurtech startups. Collaboration between traditional carriers and innovators on the cutting-edge of technology to tackle risk management challenges can benefit all parties involved. Where insurance can lead to increased credibility and consumer confidence, platforms will have more participants and carriers will have new customers
[1] http://www.emarketer.com/Chart/US-Adult-Sharing-Economy-Users-Penetration-2016-2021-millions-of-adult-internet-users/209547
[2] https://www.lloyds.com/about-lloyds/what-lloyds-insures/the-sharing-economy/report
[3] https://www.lloyds.com/news-and-risk-insight/risk-reports/library/technology/sharing-risks-sharing-rewards
[4] Id.
[5] Id.
[6] Id.
[7] https://www.lloyds.com/news-and-risk-insight/risk-reports/library/technology/squaring-risk-in-the-sharing-age
[8] Dion Oryzak and Amit Verna, Insurance 2.0: Insuring the Sharing Economy & Sharing the Insurance Economy, Casualty Actuarial Society E-Forum, Summer 2015.
[9] Id.
[10] Allstate and Uber Team Up to Protect Riders and Drivers in areas of New York State, PR Newswire 14:00:00, June 29, 2018, https://www.prnewswire.com/news-releases/allstate-and-uber-team-up-to-protect-riders-and-drivers-in-areas-of-new-york-state-300674613.html
[11] New Research from Startupbootcamp and PwC Explores how InsurTech has Evolved Over the Last Three Years, 2018 WLNR 2236853, July 22, 2018, Shillito Market Intelligence Ltd.
[12] https://www.prnewswire.com/news-releases/trov-begins-us-roll-out-of-on-demand-insurance-300675785.html
