The term "shared economy," which is bandied about on talk shows, in popular media, and even in an upcoming Aite Group Impact Note, refers to the segment of the economy that connects consumers to share assets for a transactional fee in lieu of selling assets or transferring ownership. The growth of companies that connect consumers to one another using slick digital platforms has disrupted industries including hospitality, transportation, and insurance.
If we take the long view and set aside concerns about temporary or short-term disruptions, we can see that consumer usage of these services indicates a readiness to take advantage of technology in order to efficiently use existing assets within a community. This willingness to connect with each other is tied to platforms that facilitate such transactions and provide a level of quality assurance. These companies connect people on behalf of efficiency and convenience, maximizing the use of existing goods and decreasing expenses for everyone. In essence, however, shared economy companies are taking a page from an old book: insurance.
Everyone gets a friendly laugh when we talk about the insurance industry’s typical lag in adopting new or innovative technology. Part of the reason for such a lag is an inherent piece of the insurance architecture, however. In order to underwrite risk, we need to understand it; in order to understand it, we need data. Data takes time.
While the insurance industry moves forward in data collection and risk adjustment in response to new consumer behavior in the shared economy, the industry can simultaneously participate by reverting to the roots of insurance risk-pooling, which does not necessitate a timely dependence on new data. Instead, insurance companies have an opportunity to capitalize on the new cultural willingness to share cars and homes with perfect strangers. Why not allow people to share risk in their insurance policies? In fact, isn’t that how insurance originated?
The shared economy of insurance has several potential applications. Looking at auto insurance, companies could follow in the footsteps of the U.K.’s Guevara, a peer-to-peer insurance company similar to a mutual insurance company, except that the consumers get to control who is in their risk pool. Or companies could facilitate the creation of car clubs, allowing a group of friends, roommates, or neighbors to pool their risks and insure one vehicle together. This use case would give access to a car as needed for individuals who do not depend on cars, while minimizing the expense for everyone involved.
Similarly, insurance companies could rethink renters insurance and target the growing population of young people who do not own a home and do not live at home but live with roommates or friends—most of whom lack renters insurance! Why not let them pool their risks since they all live in one house or one apartment anyway? The idea of applying shared economy values to the business of insurance can be taken to the commercial level as well. For instance, companies in a variety of industries use a vehicle fleet to facilitate deliveries—perhaps these companies could reduce the number of vehicles in their fleet by collaborating with each other. In this case, they can share trucks, share risk, and reduce costs.
Consumers take to their computers, tablets, and mobile phones to find the easiest way to get what they need, for only the amount of time they need it, and only at the cost they want to pay. Insurance companies need to rethink how to sell insurance in this context. If companies can creatively revisit the roots of the insurance process, they may just come out ahead in the end.
Lindsey O’Connell is a research associate at Aite Group.
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