New business models are usually viewed as an opportunity for challengers and a threat to incumbents. But they are also an opportunity for any existing business that can adapt to market forces and evolve its products and services. To use the industry jargon, for every ‘disruptor’ there is also an established player who will ‘pivot’ to remain competitive.
With the rise of the sharing economy, which bypasses intermediaries and is built on mutual interest between peers, the insurance industry is caught between opportunity and threat. The most direct threat is from peer-to-peer (P2P) insurance, which like P2P lending is a growing strand in the sharing economy.
According to the research firm Tracxn, brands such as Teambrella and Friendsurance top a list of more than 70 P2P insurance start-ups worldwide. But capacity in P2P insurance is limited and most companies focus on niche personal lines. At heart, they are technology-driven versions of centuries-old mutual insurance companies. The more important development is the force behind today’s underwriting innovations – namely insurtech. Once perceived as challengers, insurtechs are now viewed as partners, helping insurers to harness the benefits of digital technology.
When it comes to non-insurance P2P models, the field is open for those who can develop new business lines to fill product and service gaps. However, underwriting these models can be challenging and requires a firm understanding of market trends and hard-to-place risks.
Let’s take a closer look at the sharing economy, why it has become so popular across many industries and sectors, and what P2P models mean for the future of insurance.
Collaboration is the principle behind the sharing economy, with like-minded people coming together to share assets and services. The term ‘sharing economy’ began to appear in the early 2000s when rapid advances in digital technology, particularly the development of the smartphone, made it possible to easily connect people and support new business platforms. Many of these collaborative platforms have become household names, such as Uber and Airbnb, and PwC estimates that the sharing economy will be worth $335 billion globally by 2025.
Understanding and insuring new models
Insurance has a vital role to play in protecting the sharing economy and helping it to grow. However, as with any business trend, it takes time to understand new commercial relationships and liabilities. Brokers and insurers must carefully follow the trend, assimilate and analyse the market data, and work closely to provide cover that is in keeping with their risk appetites.
Insurers need reliable data to quantify P2P risks, and cover can only be provided if there is a clear insurable interest. Because the sharing economy doesn’t conform to traditional insurance models, and insurable interest is difficult to establish when exchanging assets and services, underwriters are in uncharted territory and must develop bespoke solutions.
For insurers with flexibility and the right focus, the sharing economy is an opportunity to diversify and extend product lines. For example, Lloyd’s stepped in to insure Airbnb in 2012 and now has a sharing economy strategy for P2P products. Another example is the ‘rent anything’ platform Fat Llama, which is underwritten by Hiscox. The presence of established and respected insurers in the sharing space inspires confidence and will encourage further growth.
Elmore and innovation
Brokers shape insurance products and help to manage change as marketplaces and businesses evolve. They are traditionally the innovators in the insurance industry, matching supply with demand, and their role is increasingly important in the fast-moving and ever-changing digital world.
The sharing economy is a by-product of digital transformation, which has led to many new enterprises, and at Elmore we design products to bridge insurance gaps and create confidence in the overall digital economy.
Whether you are a P2P start-up, a challenger bank, or an infosec, we can review your insurance requirements and help you find the right cover. Take a look at our services and the industries we support, and find out how we can protect your business and help you succeed.