If the general public was asked ‘what does the insurance industry do’, it’s unlikely the answer would be; ‘it supports entrepreneurial innovation and endeavour ’. But that’s precisely what insurers do and the exponential growth of the sharing economy has provided an interesting challenge for insurers in this role.
Sharing enablers such as AirBnB, RideLink and Vrumi are part of one of the UK’s fastest growing business sectors, with trade expected to hit up to £15bn a year by 2025. Providing traditional commercial insurance such as property and liability cover is the same as for any tech based organisation. But the concept of multi-sharing is something of a different challenge for insurers.
Take the traditional example of the conventional private car insurance product. The cover is designed to insure one person or perhaps a small number of people such as a family. The risk is contained to a small number of people and there are many years of historical underwriting and claims data to go on when deciding the price for this type of risk.
Contrast that position against, for example, the RideLink service. A car owned by one person will be driven by many other people - potentially in a single day. The drivers are unlikely to have any relationship with the owner and little interest in the car itself other than wanting to use it for a specific journey. As everyone knows, cars are expensive to repair if they are damaged and any one of those drivers could have an accident that causes injury to others that might cost millions of pounds.
The solution to this counter intuitive situation for a traditional industry like insurance is to combine a tried and trusted methodology for assessing risk with an open minded approach. So, before an insurer partners with an organisation that facilitates sharing there is a need to take a hard look at their processes and systems.
In the RideLink example, having robust criteria for who can become a member and who can become a customer helps give everyone peace of mind. As an extra level of reassurance, vehicle owners and renters review each other after each rental, so there’s a transparent database of feedback from both sides.
The concept of sharing for many people is a compelling one. In the car sharing example, there are environmental benefits and fewer vehicles on the roads will mean less competition for parking spaces in congested areas. And in many ways it makes perfect sense. What is the point of a vehicle sitting doing nothing for hours on end when someone else could be using it?
Despite the challenges and uncertainty the position is relatively straightforward. Either embrace change and find a way of working with it that might include something of an educated leap of faith, or decide that there are just too many known unknowns and walk away. The former choice is more to my liking.