The sharing economy has grown as web and mobile app technology has allowed the easy, cheap short-term use of assets by strangers. Drivers using Uber to connect with people who need a lift and home owners using Airbnb to connect with travellers are two examples of the sharing economy.
By its nature this activity blurs the lines between personal and commercial use of assets, and the insurance industry must respond with insurance that provides cover and allocates risk accurately to meet this market need.
Traditionally, insurers have provided either personal or commercial products with clearly defined end users. But this will have to change to account for activity which is sometimes simultaneously personal and commercial. Insurers will have to create products which make it clear who bears liability for events when asset use is more fluid.
The sharing economy creates new multi-party relationships between the consumer, the provider and the platform which connects them, such as Uber and Airbnb. These companies identify as pure peer-to-peer platforms with no responsibility for the activities taking place. They claim that they just connect individuals or organisations to each other and absolve themselves of any liability to the consumer or provider.
A recent Lloyds' Innovation Report (2018) called this 'the expectation gap'. It found that 53% of platforms believe that consumers should bear the responsibility, whereas 53% of consumers think that the platform should bear responsibility. This lack of understanding and difference in expectations poses clear issues for both the sharing economy and insurance industry.
If insurers can get this right, it will benefit them and the whole sharing economy. There is evidence that insurance can itself be a driver of growth, that when the right insurance is in place, consumers will use services even more than they have done to date.
Risk hinders the growth and development of the sharing economy. The Lloyds' Report said: "the majority of UK and US consumers (58%) report that the risks outweigh the benefits of using sharing economy services".
It found that 71% of consumers would be more likely to use sharing economy services if insurance was available; 70% of 'non-sharers' would be more likely to share their assets if they were protected by insurance, and 78% of service providers would attract more customers if the platform itself provided insurance.
Insurance can therefore provide the layer of trust required between the parties involved, break down barriers to use, drive growth and enable the sharing economy to thrive.
Users of the sharing economy require fast, on demand transactions often at the click of a button and often for a specific purpose and a specific amount of time.
In 2017, a report by Marketforce found that the majority of insurers had not made enough progress in providing sharing economy solutions. "Only 10% have a publicly available offer and another 35% are only at the pilot stage." it said.
Insurers that are quick to adapt will prosper, and the risk for established insurers is that if they do not move fast, new companies will. This is already happening.
SafeShare Global has partnered with professional workspace platform Vrumi to provide property owners with protection against damage and theft by tenant. Guardhog and Slice provide on-demand, pay-per-use insurance products to help fill coverage gaps in various policy types, while New York start-up Lemonade allows users to make claims via their smartphones and uses algorithms instead of people to process claims. This speeds up the process while reducing costs - the fastest claim was paid out in 3 seconds.
Traditional insurers are responding by partnering with the sharing platforms themselves. AXA partnered with BlaBlaCar in 2015 to provide additional insurance coverage for carpooling in addition to a primary policy at no extra cost. Zurich partnered with Airbnb to provide the 'Host Guarantee' of up to £600,000; and Allstate, the second largest personal insurer in the US, was the first to offer 'HostAdvantage', which can be added to an existing homeowner's personal policy for an additional annual fee, designed to plug the gaps in coverage under the personal policy where there is commercial activity.
Joshua Flew and Ava Zadkhorvash are insurance experts at Pinsent Masons, the law firm behind Out-Law.com