Property and casualty (p&c) insurers have been quick toadapt technology to meet changing consumer needs. Direct marketingand online portals make it easier for consumers to understand andpurchase insurance, while usage-based insurance (UBI) allows safedrivers, particularly those who drive less, to reduce theirpremiums.

Today, a different type of opportunity exists that may helpinsurers not only meet changing consumer needs, but also gainfirst-mover advantage in the process. Called the “sharing economy,”this market involves renting privately or company-ownedassets—generally cars or homes—primarily through an onlinepeer-to-peer network. While the car-sharing market in North Americaalone grew by 25 percent, few insurers have embraced orhave even begun to explore this market.

As people continue to seek new opportunities in the economy, andas Millennials begin to take control, it's likely this idea of“sharing” will not only thrive but also expand. So the question is:Can insurance companies make a reasonable profit from this market,and if so, how will they adapt their models to meet the newconsumer demands?

Auto and Home

The sharing economy offers a fast, efficient way for owners ofassets and renters to connect through online services. Two mainstars have emerged in the sharing economy: auto and home. Companieslike RelayRides and Getaround can help a consumer rent a car for afew hours of errands or even enjoy an SUV for a weekend in themountains. The other main sector, home rental, allows peopleto rent out their homes or simply a room on a short-term basisthrough companies such as Airbnb. As the sharing economybranches out, owners are also renting out other assets such asparking spaces, tools, and even camping gear.

Sharing allows owners to monetize the unused capacity of anasset. For renters, it's about gaining quick and easy access tothose assets without being bogged down by ownership. Access, in asense, becomes a service that is paid for per time increment or bydistance.

As the sharing economy becomes more popular, large companies arejumping into the mix. For example, Avis paid $500 million forZipcar to gain access to the peer-to-peer market. Daimler's Car2Gocharges 38 cents per minute including fuel, insurance and parking.And GM invested in RelayRides to allow peer-to-peer rentals ofOnStar-enabled cars.

Start-ups in the car-sharing economy are attracting majorinvestors who believe in their business model. There is, however,one area in which they have not been able to gaintraction—insurance. Many of the start-ups tell of cold callinginsurance companies; some have even resorted to reaching out toinsurance executives via LinkedIn. A few have been successful. Forexample, Getaround was able to work closely with insurers to securecoverage by delivering a solid risk model. Further, they arecollecting information on their consumers to help start providingthe data insurance companies need to underwrite car-sharingactivities. However, success is not the norm.

A few innovative companies are experimenting with differentinsurance models. MetroMile, for example, lets drivers pay forinsurance by the mile. Drivers simply plug a device, called theMetranome, into the car's onboard diagnostic switch to count milesdriven. A UK-based company, jFloat, allows consumers to buy into a“collaborative consumption self-insured pool” through the Web. Areinsurer backs the pool when claims reach over the maximum amount.Companies like these—thinking about how to combine insurance withemerging technologies—may provide a disruptive insurance model forthe sharing economy.

Four Questions for Insurance Carriers

Insurers may have an opportunity to lead innovation in thesharing economy, particularly in the car-sharing market. In muchthe same way as they have provided sound leadership decisions aboutinnovations in the past, the decisions about whether and how to getinvolved in the sharing economy should start by looking at fourbasic questions:

1. What is the market opportunity? What is themarket size now, and what are the projections? The idea of carsharing is gaining traction, and thus considerable study is beinggiven to its potential. Insurers should ask themselves not onlyabout market growth projections, but also what portion of thoserevenues could belong to insurance?
2. What are the market needs? Car-sharingcompanies and renters are proactively reaching out to insurers toprovide insight into their unique business models and risk needs.Insurers should take advantage of this opportunity to talk in depthwith this potential new customer base, and explore different modelsand products that might meet their needs.
3. What types of data are needed for accurate riskassessment, and where can that data be obtained?Car-sharing companies are already capturing information on theirowners and drivers. Peer reviews are providing additional data nottraditionally available to insurance companies. Work with thesestart-ups to determine what types of data are available, what needsto be captured, and how that data can be collected and used.
4. How can this data be used to assess whether thecar-sharing market aligns with your risk appetite? Mostinsurance companies have a clearly defined and communicated riskappetite. By its very nature, the car-sharing market will notautomatically fit into any pre-established category. By conductinga careful assessment of market potential and available data,insurance companies can determine if they want to explore thisopportunity further.

Today, with more advanced data-capturing mechanisms andpredictive analytics, insurers understand each of their customersat a much more granular level. It is time for insurance companiesto apply this same expertise to the sharing economy and todetermine if the opportunity is worth the risk.