The platform economy is becoming a driving force of innovation and growth, as companies create digital platforms to enable interactions between individuals or businesses that need something and individuals or business that provide something. The “something” may be a product, service, money, labor or other asset of value.
The distinguishing characteristic of platform economy companies is that they generally have high market value while owning no assets and having few employees. The world’s largest movie house owns no cinemas (Netflix). One of the largest and most valuable retailers in the world owns no inventory (Alibaba). The largest personal transportation company owns no vehicles (Uber). The list could go on. Amazon, of course, has been the quintessential platform company, although its acquisition of Whole Foods now extends its capabilities beyond digital.
But there’s a new kid on the block of platform-economy companies, and that entrant is Brandless. What is its model? And what does the whole notion of the platform economy have to do with the insurance industry?
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Brandless is a new online grocery retailer with a simple value proposition. Every item for sale is three dollars. The company provides healthy, socially conscious options such as organic, gluten-free, vegan and environmentally friendly products, obtained by fair trade principles. Although the company is not selling name brand items like Amazon and other online retailers do, Brandless is nonetheless connecting suppliers that create the products to buyers that are looking for items with these characteristics. It could be just another of many online-only retailers that are based on a digital platform. Or it could grow to become a dominant force in grocery. The irony is that the biggest challenge it may face is building the Brandless brand, something that is already underway despite the company name.
Insurance and the Platform Economy
There are three implications for the insurance industry from the platform economy overall. First, and perhaps foremost, is how customers and their risks are evolving. Platform companies are reshaping industries, becoming companies with major insurance needs in their own rights while causing incumbents in their industries to rethink their businesses or venture into building their own digital platforms. In addition, the risk profile is different for these platform-based businesses, as they are likely to have huge cyber-risk exposure but limited needs for workers’ comp and property coverages.
The second implication for insurers is that other emerging “economies” such as the sharing economy and the gig economy are based on digital platforms. They are “instances” of a platform economy. For example, the gig economy enables independent individuals to offer their labor and skills to a company or another individual who needs it, with the platform operator taking a fee for making the connection. The sharing economy, in particular, is already important for insurers, as it influences the ownership and use of assets by individuals, such as cars, homes, and bikes.
Finally, insurers must consider the rise of the platform economy models in the insurance industry. The early models tend to be digital agents and brokers, performing a similar function to live agents today, but doing it via modern digital platforms that may be easier, faster and lower-cost than traditional distribution channels. It is generally understood that digital agents will have a big impact on certain segments of the insurance industry. It remains to be seen if the platform economy model will succeed in other parts of insurance, such as for peer-to-peer insurers, claim repair networks or subsets of the gig economy for insurance industry professionals like adjusters and loss-control engineers.
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One thing is certain. Insurers should investigate and understand the developments in the platform economy. As many insurers strive to become more digital, the creation of digital platforms and capabilities within the enterprise will position insurers to participate in other dimensions of the platform economy. Brandless may or may not become a big brand, but the momentum for the platform economy is unmistakable and something in which insurers should be actively engaged. Will there be a future platform-based company in the insurance industry that becomes the largest force in insurance without holding any risk or employing any underwriters and adjusters?
