If you’re still unsure of the term ‘sharing economy’, it refers to collaborative consumption and is generally organized around a technology platform that facilitates the exchange of goods, assets, and services between people across a varied and dynamic collection of sectors.
Originally growing out of the open-source community to refer to peer to peer-based sharing of access to goods and services, the term is now often more broadly used to describe any sales transactions conducted via online marketplaces.
Household names such as the home-sharing model, Airbnb, or car sharing services, Uber and Lyft, are the first to come to mind when you consider the sharing economy. While these leaders continue to grow and push regulatory issues, there is so much more happening away from the spotlight.
Over the last few years, we’ve seen the rise of the sharing economy – or ‘collaborative consumption’ or the ‘gig economy’ – due to the advancement and increasing use of social media and technology in our everyday lives. There is an argument that suggests almost any industry can be ‘disrupted’ by asset-sharing models, and the sharing economy is especially relevant to transportation. According to PWC, in 2015 peer-to-peer transportation platforms generated the highest revenues (€1.7bn) and are a top three contributor to the value of transactions concluded within the industry (€5.1bn), behind peer-to-peer accommodation and collaborative finance marketplaces across Europe.
A Catalyst of a Burgeoning Fourth Industrial Revolution?
In a recent article, freight analyst and reporter Chad Prevost, says that: “Every great economic paradigm requires the interaction of three essential elements to enable the system to operate as a whole: new communication technologies, new sources of power, and new modes of transportation. All these collaborate to increase efficiencies in growing economic demand.”
This is also true when observing the trends that underlie the evolution of the sharing economy within transportation: the prevalence of smartphones, the move towards renewable sources of energy, and the increasing acceptance of emerging forms of mobility are factors that support the growing number of new propositions coming to market that take advantage of these trends.
Over the last few years alone we’ve seen:
- the recent frenzy regarding Bird, LimeBike and Spin – app-based scooter rental services operating predominantly on the West Coast in the United States;
- the entry of on demand bus rental services e.g. com (formerly known as ShareTheBus) operating across the United States and Canada and Bussi in Mexico, and
- the emergence of shared air travel services e.g. JetSmarter, SurfAir, Wingly, etc.
Jeremy Rifkin, author of The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism, discusses the evolution as nothing less than a third Industrial Revolution.
The 19th Century saw the rise of steam-powered printing and the telegraph, abundant coal and locomotives on national rail systems, which led to the Industrial Revolution; whilst the 20th Century saw centralized electricity, the advent of the telephone, radio and television, as well as cheap oil and internal combustion vehicles on national road systems, come together to create an infrastructure for another industrial revolution.
Due to the growing trust of digital technology for the transfer of goods and services – often through asset-sharing services – are we in the midst of a seismic shift towards a fourth industrial revolution? If this is the case, what impact will this have on transportation and mobility? And what barriers to innovation in the transportation sector need to be overcome?
Opportunities and Limitations
The transportation ecosystem is evolving, and new collaborative opportunities are emerging. Trust, technology platforms and the trend to avoid ownership of assets are facilitating factors in its growth. Yet, over-regulation, inconsistent quality of service, and the need for recommendations are potential barriers.
Research into the topic suggests that the future will require holistic transport strategies that consider sharing options and will require government departments to work cooperatively. Many cities are already trying to create new transport infrastructures to alleviate existing concerns of growth.
But as stated in a recent article looking at the sharing economy and transportation in Canada: “There is no common blueprint or silver bullet. Each city is unique and will need a wide array of services to fit within the existing transportation network, while at the same time leaving enough room for future evolution. This is why we need to take a local, responsible approach to co-creating solutions that fit each location.”
The Sharing Economy’s Intersection with Insurance
It is without question that the sharing economy is on the radar of the insurance industry and here is the evidence:
- various leading market participants have published reports exploring the challenges and opportunities associated with insuring the sharing economy from the British Insurance Brokers’ Association in collaboration with Allianz, to AIG to Lloyd’s, demonstrating the sharing economy’s relevance across multiple lines of insurance and across various distribution channels;
- some insurers have created centers of excellence in this area e.g. XL Catlin established a centre of excellence on the sharing economy in 2016;
- other insurers have invested in startups e.g. Munich Re and SOMPO in Slice Labs Inc., China Pacific Insurance in Metromile, Nationwide Venture’s investment in Sure, etc.;
- a number of insurers are partnered with startups, scaleups and tech giants to offer insurance along with a core sharing service: Admiral with Easycar and Rentecarlo, Zurich with Uber, Airbnb and Relendo and Tryg with GoMore and 24 other sharing economy platforms, etc.;
- lastly, several insurers are developing products specifically for the sharing economy e.g. Allstate, Geico and StateFarm are the top three insurers who provide rideshare insurance across the most states in the United States .
When we look at the sharing economy in relation to mobility and the insurance industry, some key themes are already apparent:
- It’s a driver of new insurance business models: on-demand insurance was born out of the gig/sharing economy. Companies like Zego provide cover to UberEats and Deliveroo drivers only when they are working. This means that this shared resource of delivery drivers has coverage only when it is necessary.
- It leverages insurance to facilitate active market participation from service providers: despite the freedom and flexibility enjoyed by offering services on sharing economy mobility platforms, without insurance, service providers have limited incentive for providing their services on these platforms over doing so through more traditional careers that offer more protections in the case of life altering events. This is why for example, Uber has forged a partnership with Axa to provide it’s drivers with On-Trip Cover (e.g. medical, hospitalisation, personal injury, death, and disability) and Off-Trip Cover (e.g. sickness & injury, maternity/paternity, and jury service) across Europe. Uber drivers don’t pay for this cover and it’s automatically active when the drivers meet certain eligibility criteria.
- It introduces risks not covered by traditional insurance products: vehicle owners participating in the sharing economy face the risk of invalidating their standard private car insurance policies when providing ridesharing services as they are viewed as using their vehicle for commercial purposes.
It has been determined that there are four periods during which ridesharing drivers require coverage: period 0 (app is off and no ridesharing taking place), period 1 (app is on and the driver is waiting for a ride request), period 2 (driver accepted a request) and period 3 (driver picked up passengers). As such, despite an attempt by platform providers e.g. Uber or Lyft to provide additional coverage – the policies they provide only cover the drivers during period 1 (limited liability coverage), 2 and 3. Drivers therefore have two options in order to cover their remaining exposure: 1) obtain a commercial insurance policy (often expensive: an average commercial policy for a passenger car in the United States costs between $1 200 – $2 400 a year) or 2) obtain rideshare insurance – provided by various insurers and new entrants (not available everywhere and still require disclosure of ridesharing activity to the primary personal insurer for any claims to be valid).
- It relies on emerging technologies coupled with insurance to provide a safety net and peace of mind for market participants: sharing a vehicle requires a significant leap of faith for most people and in order to do so, having the safety net of insurance and the assurance that driver behaviour is monitored (using telematics) is key e.g. Car & Away has partnered with Allianz (to provide insurance), Octo (to monitor how the cars are driven in order to keep the insurance premiums low) and RAC (to deliver 24/ full roadside assistance for breakdown & recovery) and is therefore able to deliver a comprehensive and hassle-free rental service for car owners and renters.
- It encourages regular use of ridesharing services by offering protection for riders as well: more and more people are using ridesharing services as their primary mode of transportation and require the same protections they would have if they were driving themselves. This is where RideSafe comes in, it’s an on-demand insurance product developed by SURE and underwritten by Chubb that offers passengers essential cover (medical, death and disability) while using ridesharing services. To begin with RideSafe is available on Uber and Lyft across the United States and in future aims to provide cover for passengers riding in autonomous ridesharing fleets as well.
- It makes it necessary to develop bespoke underwriting approaches: there is limited or no precedence on how to underwrite the dynamic risk associated with insuring shared transportation models presenting both a challenge and an opportunity for the insurance industry – experts recommend designing insurance products for specific services within the sharing economy from first principles rather than altering existing insurance products. This is because significant coverage gaps may arise from taking the latter approach.
- It proposes services not yet covered by existing regulation: Flytenow was shut down in December 2015 after it was banned by the Federal Aviation Administration as the private pilots on the platform were considered to be providing a service as common carriers which subjects them to similar regulation as large commercial airlines. This ruling hampered Flytenow’s commercial viability as it could not afford the licensing fees associated with being a commercial carrier. There’s therefore an ongoing imperative to proactively manage the regulatory implications presented by the business models of sharing economy marketplaces.
It is therefore undisputed that insurance plays a critical role in unearthing the true potential of the sharing economy.
What Does the Future Hold?
Advancements in transportation, to get to a point where we live without the hindrances of car ownership in which you can reach your destination by car without worrying about where to park or having to remember to fill up the gas tank, for example, will be founded in a deep understanding of what can be shared to alleviate congestion, remove stress, and add value back to people’s lives.
Technological innovations in personal, on-demand services will help get us to this future – and the sharing economy could be the answer. Whether it be by developing a solution that would allow individuals using a car or bike sharing service to immediately report a claim; or create a way to incentivize car-sharing operators to drive more responsibly; or develop a way to evaluate the risk of shared fleets of vehicles – technology, the sharing economy and insurance could solve many of the challenges currently faced in the transportation sector.
Call to Action
Do you wish to play a role in informing how the sharing economy and developments in transportation impact insurance? Join us as we practically consider this topic further at our TechSprint taking place at RocketSpace (40 Islington High Street, London, N18EQ) from Friday, 22nd June at 6pm and culminating at 8:30pm on Saturday, 23rd June. Visit this link to register and obtain more details on the event. Visit this link to learn more about the views shared by an insurer, investor and startup that are currently active in this sector during a pre-TechSprint webinar we hosted on Thursday, 14th June 2018.