Last week, we looked at the potential of the sharing economy and some of its top performers.This week, we’ll explore how insurance fits into that picture.
Start-ups in the car-sharing economy are attracting major investors who believe in their business model. There is, however, one area in which start-ups have not been able to gain traction—insurance. Many tell of cold calling insurance companies; some have reached out to insurance executives via LinkedIn. A few have been successful. For example, Getaround, a car-sharing service, was able to work closely with insurers to secure coverage by delivering a solid risk model. Further, the company is collecting information on its consumers to help start providing the data that insurance companies need to underwrite car-sharing activities. However, success is not the norm.
One major insurer, for example, specifically rewrote its personal auto policies to exclude car-sharing. A company spokesperson for another large insurer stated that, “The owner could put their current coverage for personal use of the vehicle in jeopardy as the act of making the vehicle available for rental purposes could inherently change the risk profile of the vehicle. And, by entering into commercial arrangements with their vehicle, the insured may risk being unable to secure auto coverage from our company in the future.”
Legislators have also gotten into the game. A few states have started to make inroads into the insurance challenge. For example, California and Oregon both state that a personal auto policy cannot be considered commercial, even if the owner participates in car sharing. However, the law also declares that the auto-sharing company, not the owner’s insurer, is responsible for any damage caused during car-sharing activities. In other states, legislation has not been as supportive. For example, New York state issued a cease-and-desist order against RelayRides when its insurance coverage was declared “illegal and inadequate.”
A few innovative companies are experimenting with different insurance models. MetroMile, for example, lets drivers pay for insurance by the mile. Drivers simply plug a device, called the Metranome, into the car’s onboard diagnostic switch to count miles driven. A UK-based company, jFloat, allows consumers to buy into a “collaborative consumption self-insured pool” through the Web. A reinsurer backs the pool when claims reach over the maximum amount. While these particular models do not directly apply to the car-sharing business today, they are heading in the right direction. It’s companies like these that are thinking about how to combine insurance with emerging technologies that may provide a disruptive insurance model for the sharing economy.
In the meantime, car-sharing enthusiasts are not idly sitting by waiting for insurance companies to respond. Instead, they have been reaching out to insurers and legislators to help them better understand the business and risk models. The goal is to provide insight into the needs of the car-sharing market and work with insurers and legislators to develop solutions. While it is to be expected that companies like RelayRides and Getaround would be proactive, a new consumers group has also emerged. Called Peers, it represents the renters’ side of the equation, advocating for their needs and their protection. Even universities are getting into the mix to help create solutions. For example, the University of California at Berkeley’s Transportation Sustainability Research Center regularly publishes a report on the auto-sharing industry. Its conference on the topic will host a session on "Insuring Shared-Use Mobility Services."
Investors, consumers, governments and legislative bodies are all weighing in on the car-sharing market. The only industry that has remained relatively silent is insurance.
Next week, we’ll look at how insurance companies can evaluate the sharing economy opportunity in light of their individual business models and risk appetites.
