Insuring the gig economy - who is up for it?

As companies like ride-hailing app Uber or short-term lodging platform Airbnb are expanding fast and other enterprises with similar market approaches are expected to join them, traditional insurers and start-ups are experimenting with technology to make cover available to this growing business segment.

Referring to Uber, Airbnb and freelancing platform Upwork, Stephan Muecke, member of the Swiss Re Principal Investments team, says that “there is a huge untapped demand for insurance coverage for the services and assets that are private. Start-ups are trying to fill the gap because the incumbent insurers have been slow to adapt to this new type of economy.”

Growth potential

This new economy is already a sizeable market. Uber, for example currently operates with 3 million drivers in 65 countries, completing 15 million trips a day, according to the company.

Airbnb’s accommodation marketplace offers access to nearly five million listings worldwide in more than 191 countries.

Another large category of new business that may need appropriate insurance cover is group buying platforms which allow friends or unrelated people to buy a product together, Muecke says. He also points to Huddle, a platform which enables teams to cooperate, to share, discuss and work on content, as an example of business model that may offer opportunities for insurers.

Furthermore, there are platforms that allow people to make investments together or pool their risks such as Crowdcube, Muecke notes. The UK-based investment crowdfunding platform grew the number of companies seeking funding over its platform by 23 percent year on year to 325 in 2017, completing 120,000 investments totalling £130 million of investment.

But Muecke also notes that the sharing economy is associated with significant risks and that one can expect large claims from companies in this space. At the same time, by offering cover, the insurance industry may accelerate the growth pace of the sharing and gig economy sectors.

“If you have a house or a car and you rent that out and you provide a professional service to people you are more inclined to do that if you have some guarantee that if something goes wrong you get compensated for the loss,” Muecke says.

“Studies show that more people would participate in the sharing economy if such a protection was in place for the assets and services. Insurance companies and start-ups can actually drive growth in the sharing economy by creating products tailored to the sharing economy,” he notes.

Producing the right cover

Muecke believes that insurance companies do have the know-how to underwrite such risks, pointing to the rental car insurance market. “It’s just a matter of re-thinking existing products,” he says.

But Rob Moffat, partner at UK-based venture capital firm Balderton Capital, is sceptical.

For companies like Airbnb you need an insurance policy that is incredibly flexible, Moffat says. Participants in the marketplace may need insurance only five times a year and the insurer cannot rely on data from Airbnb but needs a verifiable source, he notes.

“The same is true for someone like Deliveroo, or Uber, you need to find out when the drivers are working,” Moffat says.

AXA is up for the challenge. In May the French insurer partnered with Uber to offer benefits to all the car-hailing app’s independent partner drivers and couriers in Europe.

Uber will provide a range of protections including accident, injury, illness, and paternity benefits for drivers and couriers when they are on and off the Uber app in European markets as part of the AXA partnership.

Munich Re-backed Trōv is also working on new technology to insure the gig and sharing economies. “We need to work on definitions of temporary ownership for underwriting policies,” says Ed Axon, Trōv senior vice president business development.

“At the moment it’s not very flexible. We need to make it easier for the Airbnb user that only rents out five times a year to have a policy that they are comfortable with and is also good for the renter. Some of that redefinition of historic elements of insurance policy needs to be rewritten,” Axon says.

Trov offers on-demand insurance for specific amounts of time through their smartphones and received approval for its on-demand insurance services from regulators in 23 US states back in July 2017.

Seeking innovation

Start-ups may be better suited to address the insurance needs of the gig economy, Moffat suggests. Some people may have multiple employers and work as freelancers or employees, working as a web designer one day and the next day doing deliveries for Amazon, he explains.

To offer appropriate insurance cover to such individuals will need the support of technology that aggregates new data on the insured’s risk exposure, Moffat notes. “You need to have an incredibly low cost, fully automated system because the amounts being insured for a day of cover at Airbnb or for an hour of cover for a driver are pretty small,” he says.

Trōv believes that it has the right capabilities to deliver the right products. “We can calculate risk dynamically and by the seconds, depending on how much data we have,” Axon says.

Focusing on the individual

The market for such flexible on-demand insurance is expected to continue growing. Axon believes that subscription-based or pay-per-usage insurance will become prevalent, insuring customers wherever they are and whatever they are doing, using the available personal data.

“There will be more driverless cars, more gig economy workers, more food delivery, and I think as an industry we just need to work around it and make it contextually relevant or else you are under risk of underinsurance, Moffat says.

The focus on the individual means that traditional insurers will need to adapt their business model, according to Tassos Anastasioum, former RSA CEO Asia Middle East Russia.

“The concept of insurance was all about the pooling of risk. Now we have to understand a bit more. The insurance companies should not only pay attention to traditional risk factors such as financials and the risk position but include behavioural aspects that are having a risk implication,” Anastasioum explains.

“Insurance companies need to understand and embrace the ecosystem,” he says.

Moffat adds: “Technology allows you to price in a much more granular way. For someone’s liability insurance, if they work in different functions at various companies, then individuals’ behaviour really matters and that’s where a lot of big data can be really helpful.”

So far, insurers have mostly relied on historical data to calculate prices but Trōv is now trying to integrate some more technology beyond telematics to calculate risk dynamically. “In this gig, sharing economy the risk and what people require changes, and technology can help us commoditize and modularize what we offer,” Axon explains.

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