The Shared Economy and why insurers aren’t in the game

Stop Press

• London’s black-cab drivers have caused gridlock in the city to protest against car service Uber.
• During the last wave of industrial action in France, thousands of commuters managed to get into work by using the services of BlablaCar, a French car sharing business
• Conservative MP Robert Syms sponsored a debate in Parliament recently to call for action against rowdy weekend parties taking out short term lets in the posh Sandbanks district of Poole in Dorset.
• I’m thinking of taking the family for a home from home week in New York, and staying in a New Yorker’s house while they come and stay in my London flat.

These news snippets all relate to the sharing economy. The what? The sharing economy is built on sharing the creation, distribution, trade and consumption of assets and services to enhance the value of those assets and deliver wealth creation. It’s growing rapidly, thanks to technology that now enables information sharing and transactions to take place.

The Government believes the sharing economy was worth £500million to the UK in 2013, and it’s growing at 25% a year. Transport for London estimate that by 2020, there will be one million car sharing scheme members in London alone. The aforementioned Uber has a market cap of $10bn, as does Airbnb, another fast growing ‘sharing economy’ business in the hospitality/travel sector.

With numbers like these, is it any surprise that the Government has identified the sharing economy as one of four key areas for policy development. But hang on, there’s a problem. One of the top two challenges entrepreneurs have identified as a barrier to growth in the shared economy is……. Insurance.

Challenge one: an entrepreneur approached a number of insurers to insure a global home swap business. They found it impossible to get simple travel cover for their customers that you would find normal on a traditional travel company website. Sharing companies cannot get access to services that other businesses and individuals take for granted. Household policies don’t generally cover somebody else’s stuff being stored in the home, for example.

Challenge two: even if they do find insurance, sharing companies find it hard to understand how they are covered and what they are covered for – often their broker doesn’t either. Educating the customer is a perennial problem for insurance companies, who tend towards “insurance speak” in policy documents, as opposed to plain English.

Challenge three: in an era of low investment returns and increasing capital requirements, risk pricing has become more and more important, especially so in the personal lines market where insurers have standardised their products to achieve scale, and competition is more intense than ever. The individual and the asset are insured together. If you don’t own the asset, you can’t insure it.

The biggest shared economy businesses end up searching for cover at Lloyds, exasperated by the lack of interest from the usual suspects who cannot get to grips with rating individuals that participate in a number of different life activities. For all the protestations of customer focus at the recent Biba event, the mindset among the big insurers is still: “Here’s our product, please buy it,” as opposed to: “What do you want, and we’ll go and make it.”

The insurance industry is such a barrier to growth in the shared economy that the Government has set up a working group to try and shift the ‘that’ll never work’ mindset. Led by Bluefin chairman, Stuart Reid, the group will discuss the issues with shared economy entrepreneurs and explore how to break the logjam.

The sharing economy challenges the way we have thought about insurance over the last decades, highlighting the need for a more intuitive and authentic customer approach, providing products that match the lives of consumers today – not the demands of big insurance systems and processes.

Take the example of a friend of mine, on a skiing holiday in March this year. He had the usual winter sports cover. After a new snowfall, off-piste skiing with a guide looked tempting. He said: “What I needed was an app which enabled me to contact my insurer and arrange off-piste cover for the morning while I was in the chair lift going up the mountain.”

It wasn’t his ability as a skier holding him back from the new powder snow. Nor was it his communications: app technology is a hugely powerful enabler.   It was his insurance provider.