The sharing economy is poised to increase data use at insurers

It’s happening: The still-nascent shared-mobility market is jumping headfirst into service diversification. Rideshare companies are aggressively investing in sharing scooters and bikes. Meanwhile, car-sharing companies are turning into rideshare platforms, or at least offering their vehicles up for ride-share offerings.

Typically, offering new products requires companies to strategically adjust key activities within their organizations – things like modifying operations, building partnerships, and taking on new marketing activities. But when shared mobility companies introduce an extension to their offering, it requires the consideration of a whole new dimension, the balance of risk and purpose.

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A pedestrian uses an app on a mobile device to unlock a Ford GoBike in San Francisco, California, U.S., on Monday, June 11, 2018. Lyft Inc. is in discussions to acquire Ford GoBike and Citi Bike operator Motivate for $250 million, a person familiar with the matter said. The acquisition, if it goes through, would thrust the second-largest U.S. ride-hailing company into the middle of the brewing war over electric scooters and bikes that's beginning to roil American cities. Photographer: David Paul Morris/Bloomberg

Stand alone car-share and ride-share risk is still largely unknown to insurance providers. This is primarily because the shared mobility industry is relatively new. But a secondary reason is the way that risk is rapidly transferred between a number of different providers, as different shared mobility models blend and drivers platform stack services. As we know, when Insurers don’t fully understand risk, they hedge their bets with premiums that put them in an advantageous position. The introduction of even more complexity with service diversification will translate into greater hedging with higher premiums.

Still, shared mobility platforms will continue to push Insurers to think dynamically, such as pricing each mile for how it’s actually used, to reflect the true risk that it incurs by each driver and use case. Why would they do this? Because they will have to. Many shared mobility platforms have required massive investment, and while the “invest in building a network now, figure out how to monetize it later” mentality has trended as a popular business model for a while, these companies are receiving pressures to reach profitability. This is especially true for Uber, as they plan their long awaited IPO.

What these platforms have realized, is that the path to profitability is service diversification, and this extends beyond the carshare-rideshare-bikeshare blended models. It was reported late last year that Uber Eats was profitable in more than 40 cities. Another example is Ford’s recent launch of GoRide, a new service that will take patients to and from medical appointments. Directly competing with UberHealth, this strategic move aligns neatly with their plans of discontinuing select vehicle production to control margins. Earlier this year, European auto giants Daimler and BMW agreed to combine their ‘mobility services business units.’ This merger of Daimler’s car2go with BMW’s Reach Now in US with DriveNow in Europe is an ambitious, and rare, collaboration by two longtime rivals looking to compete more efficiently (i.e., profitably) globally.

These new initiatives to grow profitability by investors, market leaders, and OEMs, through service diversification signal something pretty remarkable: a new focus on the creation and deployment of hyper-relevant services that represent a wider range of needs for more people. In the end, it sounds like the consumer wins, but only with the support of insurance.

Who’s on-risk and what are they responsible for covering? Shared mobility companies take on paying for several factors:

  • The risk of their driver, no matter how well they drive (with personal insurance, drivers typically pay premiums based on their previous driving history and actual driving behavior)
  • The risk of other drivers (hello, uninsured drunk driver!)
  • The risk of the passenger (imagine the risk of crashing a car on it’s way to transport already sick passenger)
  • The risk of the territory the car is parked in
  • The risk of the vehicle
  • The risk of the natural environment

Really: Uber has to pay if someone else crashed into their driver’s car -- if the driver is carrying a passenger, someone’s got to.
The bigger problem is that insurance costs are blended rates irrespective of a company like Uber’s driver risk by purpose. However, most shared mobility platforms will argue that consumers should take on a bigger responsibility. For example, if a personal car is being driven to transport a passenger, and the driver is earning income on it, why can’t the driver pay for their own risk as though they were running a micro-business? If that was the case, they would actually be priced like a personal driver and the risk they would take on would reflect their true driving history and behavior.

If consumers take on bigger responsibility, it can actually help them get better services and pricing. However, today’s regulatory environment requires these risks to be covered by commercial insurance and, quite frankly, the insurance industry doesn’t have the tools to dynamically offset different risks and different points in time.

Due to these parameters, shared mobility platform must then make decisions on how to balance the revenue they get from a vehicle with the cost of insurance for their claimed use case. Given the increased internal focus on profitability, this doesn’t necessarily prioritize the consumer’s need at any given moment. It can mean lower pay for drivers, as well as higher prices for consumers.

Tools to monitor driving behavior, mobility purpose, and vehicle health exist. If shared mobility platforms want to truly reach profitability, meet consumer demand, and provide fair economic value, they need to adopt these tools to give themselves as well as insurers a real understanding of the true risk. If they make that investment, it will be the beginning of a major change for the industry.

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