Property and casualty (p&c) insurers have been quick to adapt technology to meet changing consumer needs. Direct marketing and online portals make it easier for consumers to understand and purchase insurance, while usage-based insurance (UBI) allows safe drivers, particularly those who drive less, to reduce their premiums.

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

As people continue to seek new opportunities in the economy, and as 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 new consumer demands?

Auto and Home

The sharing economy offers a fast, efficient way for owners of assets and renters to connect through online services. Two main stars have emerged in the sharing economy: auto and home. Companies like RelayRides and Getaround can help a consumer rent a car for a few hours of errands or even enjoy an SUV for a weekend in the mountains. The other main sector, home rental, allows people to rent out their homes or simply a room on a short-term basis through companies such as Airbnb. As the sharing economy branches out, owners are also renting out other assets such as parking spaces, tools, and even camping gear.

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

As the sharing economy becomes more popular, large companies are jumping into the mix. For example, Avis paid $500 million for Zipcar to gain access to the peer-to-peer market. Daimler's Car2Go charges 38 cents per minute including fuel, insurance and parking. And GM invested in RelayRides to allow peer-to-peer rentals of OnStar-enabled cars.

Start-ups in the car-sharing economy are attracting major investors who believe in their business model. There is, however, one area in which they have not been able to gain traction—insurance. Many of the start-ups tell of cold calling insurance companies; some have even resorted to reaching out to insurance executives via LinkedIn. A few have been successful. For example, Getaround was able to work closely with insurers to secure coverage by delivering a solid risk model. Further, they are collecting information on their consumers to help start providing the data insurance companies need to underwrite car-sharing activities. However, success is not the norm.

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

Four Questions for Insurance Carriers

Insurers may have an opportunity to lead innovation in the sharing economy, particularly in the car-sharing market. In much the same way as they have provided sound leadership decisions about innovations in the past, the decisions about whether and how to get involved in the sharing economy should start by looking at four basic questions:

What is the market opportunity? What is the market size now, and what are the projections? The idea of car sharing is gaining traction, and thus considerable study is being given to its potential. Insurers should ask themselves not only about market growth projections, but also what portion of those revenues could belong to insurance?
What are the market needs? Car-sharing companies and renters are proactively reaching out to insurers to provide insight into their unique business models and risk needs. Insurers should take advantage of this opportunity to talk in depth with this potential new customer base, and explore different models and products that might meet their needs.
What types of data are needed for accurate risk assessment, and where can that data be obtained? Car-sharing companies are already capturing information on their owners and drivers. Peer reviews are providing additional data not traditionally available to insurance companies. Work with these start-ups to determine what types of data are available, what needs to be captured, and how that data can be collected and used.
How can this data be used to assess whether the car-sharing market aligns with your risk appetite? Most insurance companies have a clearly defined and communicated risk appetite. By its very nature, the car-sharing market will not automatically fit into any pre-established category. By conducting a careful assessment of market potential and available data, insurance companies can determine if they want to explore this opportunity further.

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

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Insurers May Find Opportunities, Challenges with &quot;Sharing Economy&quot;

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Insurers May Find Opportunities, Challenges with "Sharing Economy"