New Way to Insure the 'Sharing Economy'

Disruptive influencers are surrounding the insurance industry. Speed and intensity are increasing, challenging industry practices, assumptions and business models. According to a Forbes article in January 2013, the revenue flowing through the shared economy directly into peoples’ wallets in 2013 would surpass $3.5 billion, with growth exceeding 25%. At this rate, peer-to-peer sharing was moving from an income boost to becoming a disruptive economic force. Just look at a recent profile by Silicon Valley Business Journal, where Uber Technologies CEO Travis Kalanick confirmed that Uber raised another $1.2 billion following a record year of growth in which it expanded the number of cities it serves by more than 400%, to 250 cities in 50 countries. Astonishingly, Uber, founded just four years ago, had a "post-money" valuation of $18.2 billion after a round of financing in June; today's post-money valuation is about $41.2 billion. Now that is a disruptive economic force! The shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere and at any time based on a need for point in time. It is disrupting existing business and industries while spawning new business models, leveraging the combination of crowdsourcing, open innovation and technology to create companies like Uber, Lyft, Airbnb and many others across different industries. Traditional companies  (including insurers) and their brands cannot afford to be left out of the shared economy. Insurers must reorient their business practices from product development to services aimed at meeting the needs of this new market segment and creating more value and a deeper customer experience. For a recent report, we asked insurers to think about key questions and issues: How will shared-services business models redefine risk or identify new risk? What new products and services can you develop for these emerging new businesses? For your customers who are less interested in ownership and more attracted to access, rental, reuse or subscription, how can you personalize products and services for them? Most importantly, how could the shared economy concept be used to create a new type of insurance company, challenging the traditional view? One CEO of a start-up who had just received another round of funding and was preparing to launch his business, shared this frustration: “I just wanted to let you know that I have found the hardest problem to solve as the CEO, is that after talking with 12 different insurance companies, I am still stuck on finding someone to write a policy for me! I am not sure you can overstate the tsunami of change that insurers are trying to avoid. It is frustrating to me as a CEO trying to get my company going.” His statement says it all. Insurers either can’t or won’t see the influencers and levers of change, and in failing to do so are closing their eyes to the impact to their businesses in terms of revenue and customers. Meanwhile, they are leaving the door open for competitors to fill the need, especially those from outside the industry. One company, Erie Insurance, did announce that it is offering what it believed to be a first-of-its-kind coverage to protect drivers who use ride-sharing services like Uber and Lyft. Erie initially offered the insurance in two states and would make it available in others states, depending on consumer response. The new insurance coverage is designed to solve a problem for drivers in the ride-sharing economy by eliminating confusion over what's covered and when it’s covered. While encouraging, the announcement seems rather late in the game, given that companies like Uber have been around for four years. And the coverage does not address the growing set of other business models. But a new company has stepped forward to meet the need! In the Dec. 4, 2014, Silicon Valley Business Journal, it was reported that Peers  is developing products and services for workers in the "sharing economy." Peers was founded and funded with money from a number of founders of “sharing economy” companies and has a membership of 250,000 in just a year. Peers has rolled out its first two offerings, including a home rental liability insurance policy, which works for any short-term rental platform. The policy provides as much as $1 million for personal injury or damage to property sustained by a renter and includes compensation for lost income up to $5,000 as a result of damage to a home by a renter or their invitee. The policy costs $36 a month, can be purchased for a single month, is available nationwide from insurance broker Porter & Curtis and is underwritten by United Specialty Insurance. Shelby Clark, the CEO of Peers, said in the article, "While sharing economy workers are finding new ways to fill their income gaps, they are also encountering challenges they've never had to deal with before, such as an inability to find the financial products they need or concern over the stability of their income. By combining the collective purchasing power of the Peers community, Peers is able to pioneer innovative solutions to new problems. Sharing economy workers are not alone, and they shouldn't feel that they need to navigate these issues alone.” For insurers, the Peers announcement should be a wake-up call on many fronts, from the lack of seeing and responding quickly to new market needs to seeing the emergence of a new competitor in Peers. While Peers is partnering with an insurer to underwrite the products, it has a growing customer base for which it is meeting insurance needs with innovative products and the services. In the process, it is gaining customer loyalty and potentially owning the customer in a fast-growing, new market segment, one that may be replacing existing segments. The overriding and most critical question for insurers is not if, but how, they will embrace the shared economy, crowdsourcing and open innovation – first to get in the game, then to influence change and ultimately to win. Well, one insurer is in the game. And one new competitor with a large and growing customer base is now in the game. This outside-in move by Peers is a game changer. What will your next move be?