By: Pratik Menon, Consultant, CSTG - LTI

The sharing economy model has gained tremendous traction in recent times, with a business model focused on collaborative consumption of goods and services. It is also attractive to underwriting shops for possible additional income from underutilized assets. Specialty underwriting shops or MGAs predominantly established in surplus lines have accepted this new economy.

However, most traditional insurers do not support this business model because of potential risks associated with it. Further, technology used by shared economy models is scalable and geared towards users (mobile, app-driven), which is not the case for traditional high-end insurance products. The availability of detailed user data and technologies like Advanced Analytics, IoT, Machine Learning, etc. allows sharing economy platforms to design insurance products that are better priced and targeted. For instance, Airbnb has collaborated with Lloyd’s of London to offer a Host Protection Insurance program that aims to extend primary coverage for Airbnb owners and hosts. Lyft and Uber have worked with several key insurers to develop their own model. Car sharing companies like Flexicar and Zipcar offer insurance coverage when the vehicle is rented.

Opportunities span industries
According to a 2015 PWC study, nearly one-fifth of US consumers are involved in some form of sharing economy related activity. Insurers thus have a great opportunity to offer products specific to the sharing economy platform, across verticals like home and office sharing, ride sharing and on-demand workforce.

There are plenty of opportunities for insurance companies in the automobile line of business. For instance, the vehicle sharing companies provide coverage for the owner in case there is no personal auto policy or owned auto policy. They provide coverage even when there is no supplemental coverage for the renter. In real estate, insurance is provided to both the landlord and hosts.

Obstacles to mainstream adoption
The sharing economy comes with potential risks and challenges. For example, who will pay the medical bills of a driver who develops chronic back pain after long hours at work? The traditional insurance model requires the employer’s Workers Compensation insurance to provide the coverage. But in an independent model it is not so straightforward.

Regulations surrounding the sharing economy platform have yet to be fully defined. The primary concern for regulators is the identifying the liable party – is it the individual service provider, or the company who made the match who would be held responsible? The car owner, or the car share services provider, for example.

Asset sharing also creates new challenges for property owners leasing through a sharing economy platform. For example, who helps a home sharing renter in case the key is lost to their host’s residence while traveling abroad? The renter’s insurance may provide coverage for the cost of a new key, and travel insurance may provide monetary compensation for loss on returning home. But who compensates for the unsatisfactory customer experience of waiting outside the premises for a locksmith to arrive?

In this niche market, the most crucial aspects for any insurance carrier are flexibility and innovation. Insurers will need to transform their operations, business processes and communications across the policy value chain. Sharing economy will require corporate risk managers to re-design and examine insurance programs, engagement and contacts with different vendors related to logistics, transportation, food supply, talent sourcing and occupational workers compensation, among other probable issues.

There is tremendous potential for insurance carriers in sharing economy, but they will need to be innovative, and will need risk expertise and collaboration across commercial and personal insurance to achieve success.