Ride-sharing giant Uber reported its two billionth ride last month, with more than 8 million users. Apartment sharing startup, Airbnb, is expected to have about 80 million nights booked this year, up from about 40 million in 2014, without owning a single room.
What do these two have in common, besides their off-the-charts success? They created a value exchange service in the “sharing economy.” It’s a socio-economic concept that taps underutilized or surplus resources by enabling consumers to rent or share in exchange for an agreed-upon pay-as-you-use price.
Are there opportunities for Property and Casualty (P&C) carriers to exchange services? What are the risks?
Sharing economy – a disruptive force
The sharing economy is growing at a staggering pace. In 2013, the valuation of this market was $26 billion and it is projected to reach $335 billion by 2025! This segment will generate new types of business models and risks that property and casualty (P&C) insurance carriers have not previously considered. Does that sound like an opportunity to you?
A few examples are:
- Use of personal property for commercial purposes at certain times.
- High-frequency transactions (assuming that each transaction has to be underwritten and priced individually).
- Low premium amounts per transaction.
- Less control over how assets are used with a degree of variance between transactions.
- Significant reliance on external data for underwriting, pricing and claims.
Historically, some insurers have not shown much interest in writing these risks. A few, in fact, actually cancelled policies after covered assets were offered in the sharing economy. Lack of insurance coverage from traditional carriers obliges sharing economy companies to approach excess and surplus line carriers and risk syndicates to ensure coverage. However, in our view, the sharing economy offers significant revenue opportunities for P&C carriers at a time when most have experienced flat-line growth. Failing to embrace this trend could be detrimental to the overall health of the industry.
Impact on P&C Insurance
We believe that this segment will have a far-reaching impact on P&C carriers in terms of their revenue growth and customer retention. Carriers willing to participate in the sharing economy must make investments to modify and upgrade their business processes, operations and technologies. Those that choose not to participate, will still need to make changes to their existing products and coverages, as well as their underwriting and claims processes. Work is involved either way, so insurance companies might as well focus in a direction that will grow their business!
- Business processes, operations and technology. Carriers need to align their businesses, operations and technologies to this disruptive trend to remain responsive to consumer demand and avoid the risk of losing existing market share. The following figure illustrates the impact of this market segment across the P&C value chain:
2. Revenue growth and customer retention. In a sharing economy, personal assets are used for commercial purposes, blurring the line between personal and commercial coverage. This leaves coverage gaps that can create new revenue streams for P&C carriers and can also help in customer retention. The potential for premium revenue in the sharing economy is considerable:
- ~$2 billion anticipated revenue for P&C carriers by 2020 from the ride-sharing industry.
- ~$4.7 billion of estimated premiums from the self-employed workforce in 2015.
Looking over the horizon, the sharing economy appears poised to disrupt the P&C insurance industry. To capitalize on this, carriers must rethink fundamental operating model assumptions as well as the impact across all business processes including product development, distribution, underwriting, pricing, policy services and claims.
So far, most insurers are keeping a “wait and watch” approach on their peers’ movement in this new arena. But there could be an early adoption advantage for companies that move quickly to collaborate with leading sharing economy marketplaces, transform business models, and create product and service offerings to address the needs of this segment.
Is there an opportunity for your company to join in on the shared economy segment?
To know more, please read our white paper, “The Sharing Economy: Implications for Property & Casualty Insurers.”