You can already share a ride (Uber), a room (Airbnb), skills (Airtasker), a car (GoGet), your office (Sharedesk), a meal (EatWith), your clothes (Yerdle), even energy (PowerLedger). But how does the sharing economy affect insurance?
The sharing economy refers to an economic model of peer-to-peer based sharing of access to relatively high value, underused assets coordinated through community-based online services. It’s a more efficient method of hiring something, where individuals who have things they’re not using are matched with those who want to use things they don’t have. It’s become so popular that PriceWaterhouseCoopers recently estimated global revenues for the five most prominent sharing economy sectors are worth more than US$15 billion annually, with a predicted increase to US $335 billion by 2025. And yet, insurance is often seen as the biggest obstacle to further expansion of the sharing economy.
Traditional insurance and the sharing economy
Traditional insurance doesn’t usually provide adequate cover for the types of activities on which the sharing economy relies. Policyholders may find out the hard way that their ‘commercial’ activities are not covered under their personal insurance policies, or that letting people onto their premises has exposed them to a public liability claim. In jurisdictions where sub-letting and ride-sharing models aren’t yet legal, participants could be left without cover due to illegality exclusions.
To adapt to the sharing economy, traditional insurers have taken the approach of modifying existing insurance policies – such as attaching sharing houses on short stays to existing home insurance, or treating car-sharing like a short-term car hire business. For example, IAG Labs, the insurer’s innovation hub, has developed a product called ShareCover, which covers hosts letting their properties via Airbnb or Stayz for damage or physical injury. It costs as little as AUD4 a night, and is designed to be used in conjunction with regular home insurance policies.
Challenges for insurers
In the sharing economy, access trumps ownership. But according to Stuart Reid, Executive Chairman of UK-based Insurance Broker firm Bluefin Group, the challenge for insurers is to evaluate the unknown risk of such activities and calculate the premium, when they are effectively no longer insuring a thing, but a person.
However, more nimble insurers have taken a more innovative approach. They’re harnessing the power of new technologies to provide a flexible, responsive product which better caters to their emerging customer base in the sharing economy.
Could blockchain be the answer to insuring the sharing economy? Find out in our next blog post.