Published 28. January 2015, by Jacob Tovborg-Jensen
Will the next wave of the sharing economy transform insurance for good
We’ve all heard about them and some of us have probably tried them: Uber, AirBnB and the like. They’re the new kids on the block of the ‘sharing economy’ – and all powered by digital. But before getting on to the providers, let’s start with the new customers – also referred to as the ‘Millennials’. They have grown up in a world where you don’t buy ‘small-ticket items’ such as CDs/DVDs or even pay for a track from iTunes. The Millennials pay for access to what they want when and where they need it. And that’s what has made Netflix, Spotify etc. the stars of today. But the trend also seems to be the same when it comes to ‘big-ticket items’ such as cars and homes. Teens in the US, for example, are now older when they get their first driver’s license. The trend is also being fueled by increased mobility and globalization.
Let’s look at today’s car insurance in the Nordics. Imagine the following exchange: “Grandad, can I borrow your car while you are on vacation?” “Of course,” replies the grandfather, “but someone has to be willing to pay the high excess if you have a claim as you’re under 25 years old and not listed on my insurance policy”. This scenario still puzzles me. It would, after all, be fairly easy for insurers to price the extra risk (if any) by using digital and mobile technologies, and they would also get access to potential new customers and valuable insights into driving behavior etc. with which to price future risk. This is a fairly simple example, but things get more complicated as business models evolve in the second wave of the sharing economy and the boundaries between personal and commercial insurance blur.
Breeze, a California-based company, has recently launched a new business model that lends its users a car and then helps them to start their own business as an ‘Uber chauffeur’ or in any one of other new businesses springing up in the sharing economy that require the use of a vehicle. Another US-based company, Zipments, has since 2010 allowed anyone over 18 years old with a vehicle, a phone, and a PayPal account to bid on courier services for local businesses, so soon you’ll be able to work simultaneously as a taxi driver and a delivery agent. Traditional players like Walmart have announced that they’re considering giving a discount to customers who are prepared to deliver packages to other customers. And even business models like these are soon likely to be challenged by Unmanned Aerial Systems (UAS or ‘drones’) and self-driving cars (such as Google’s) that are not necessarily owned by the user.
This development will require insurers to radically rethink their products and business models and regulators to support them. Customers with their own ‘Uber’ type of business would probably require extended insurance cover to manage ‘liability’, ‘transportation of goods’ and even ‘income protection’ if the car breaks down or they are unable to conduct their ‘business’ – very similar to the needs of small enterprises today. The rise of UASs calls for liability insurance for the operator, but also product liability and personal injury/property damage coverage for manufacturers, distributors and other parties involved. It’s also likely that regulators will require some kind of minimal insurance for owners of a UAS, as is the case with cars today.
These new business models will not go away and nor will the risks they create or the need for insurance. The ‘Millennials’ will probably continue to share and so will those companies trying to meet their demands. How will they approach insurance? They’ll either not tell their insurance company, or they’ll find a product tailored to their needs. Some traditional insurers might see this as a threat, but I see this as a huge opportunity for insurers that are able to adapt and ride the wave of the sharing economy, digital and, most importantly of all, understand the customers of the future.