How Does Sharing Economy Affect the Insurance Industry?
Introduction
Before the emergence of sharing economy, there were a lot of unused or underutilized skills and resources in society. On the demand side, however, there is unmet demand for specific services/commodities in the market.
Benefits of Sharing Economy (SE)
The emergence of SE enabled market participants (agents) to access more economic resources than ever before; whether it is in the form of land, labor, capital, or technology. As this satisfies the interests of all sides, it has greatly improved efficiency and reduced deadweight loss.
Sharing Economy Overview
Currently, this SE model has been adopted by different sectors of the economy.
Some Online Platform Examples Include:
Accommodations (such as Airbnb, Vrbo)
Carsharing (such as Evo, Modo)
Delivery services (such as Doordash, Chefs Plate, Fantuan)
Ridesharing (such as Uber, Lyft)
Companies using this SE model has enabled consumers to have more control with regards to what they want, when they want it and where they want it from. This also benefits the service providers, enabling them to deliver their goods and services to customers that were once unreachable in the past.
SE In Covid & Growth Projections
Growth Rate Projections Before Pandemic
Before the pandemic, SE was growing at a fast pace. It was estimated that by 2025, the value of SE would be $335 billion (Yaraghi, N. et al., 2017).
SE Trend During Pandemic
According to Statista, in the second quarter in France, restaurant delivery users increased by 24% compared to pre-pandemic numbers. In the US, delivery companies also reported growth in their revenues. Combined revenues from the four major delivery companies, Uber Eats, Doordash, Postmates, and Grubhub, from April-September 2020 was double the amount during April-September 2019 (Arunashvil A., 2021).
Insurance Industry Challenges
Lack of Historical Data
Insurers rely on historical data for insurance coverages and premiums
Startups lack historical data and knowledge of behaviours
New Risks Require New Considerations
Seller-buyer relationships are transforming
SE uses various IT platforms to connect buyers and sellers
Liability exposure varies with the level of involvement and representations made in the transaction
Determining the Liability Exposure
Emerging businesses have not tested their liability exposure
Specialized Industry expertise, such as
industry-specific laws and regulations,
industry practices, growth, and issues,
insurance knowledge needed to evaluate their risk dynamics
Case Study - Self-Driving Vehicle Fatality
Backup driver charged in fatal autonomous Uber vehicle crash" (CBC/Radio Canada, 2020).
Backup Uber driver involved in the first self-driving vehicle fatality
Charged with negligent homicide before fatally striking a woman
Prosecutor declines to file criminal charges against the corporation (Uber) in Herzberg's death
Officials said the contributing factors included:
Uber's inadequate safety procedures and ineffective oversight of its drivers
Victim's decision to cross the street outside of a crosswalk
Arizona Department of Transportation's insufficient oversight of an autonomous vehicle testing.
The board also concluded Uber's de-activation of its automatic emergency braking system increased the risks associated with testing automated vehicles on public roads. Instead of the system, Uber relied on the human backup driver to intervene.
Considerations:
Self-Driving tech is on the rising trend of SE.
Lack of self-driving vehicles’ historical driving data and behavior compared to human drivers.
What and who determines the pricing and coverage for autonomous vehicles’ insurance policies that fall in the SE category?
Where does liability fall in the event of an incident?
The self-driving vehicle manufacturer(s)?
The platform(s)?
The victim(s)?
Recommendations
Tailor autonomous vehicle insurance policies
Autonomous driving vehicle technology on the rising trend.
Create insurance policies that can protect the interests & rights of passengers, human drivers, and 3rd parties (such as pedestrians & property).
Collaboration between insurance & SE platforms
Gaining more insights into industry practices, growth & issues.
Data & information transparency between the SE platform & the insurance companies.
Adjust insurance policies to adapt to the fast-changing environments.
Government lobbying for stricter regulation
Information asymmetry requires gov't intervention & regulation.
The insurance industry is able to better oversee & address the forthcoming risks & loopholes on new start-up in SE with assistance of government powers.
Ensures a fair & competitive business environment
Summary
The SE model has been adopted by various sectors, for example in accommodations, carsharing, delivery services, ridesharing, etc.
Food delivery services continue to grow in various countries both during & post-pandemic.
Lack of historical data results in unknown risks, which requires different considerations, & determining liability exposure are some of the main challenges encountered by the insurance industry.
The insurance industry could think of tailoring new insurance policies for autonomous driving, deepening collaboration with companies in SE, & lobbying the government for improved regulation.
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