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How the Sharing Economy is Shaking Up The Insurance Industry

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There has been much talk in the past few years about the new gig and sharing economy, and how it will change our society as a whole. The rise of companies like Uber and Airbnb has given consumers more options, but has also invited criticism of how these companies are avoiding shouldering their expected burdens.

These criticisms are perhaps most apparent in the insurance industry, where companies have to understand that the sharing economy offers both challenges and opportunities. The insurance industry in many ways has not changed significantly over the past 100 years, but companies will have to adapt to a new world and make sure to educate current and potential customers of new dangers in this sharing economy.

Insurance Expectations versus Reality

Uber and its proponents argue that drivers can make a good income working as many hours as they wish, but its detractors point out that a reasonable hourly wage masks hidden costs such as depreciation, gas, and maintenance. And that does not begin to even touch on the subject of insurance.

Insurance Journal published a 2017 interview which stated that “60 to 80 percent of drivers don’t have rideshare insurance.”

This happens because many ridesharing drivers do not realize that there are moments when their coverage becomes severely limited. When an Uber driver is driving around on their own business, they are covered by their personal auto insurance. When an Uber driver accepts a ride request and takes a ride request to a destination, they are covered by Uber’s commercial insurance.

But the problem appears during the timeframe when an Uber driver turns on their driving app indicating they are available, yet have not accepted a ride. They are not covered by their own insurance since they are at that moment using it for commercial purposes, yet are not also fully covered by the company.

And ridesharing is not the only moment when insurance fails to meet expectations. Airbnb is another example, as people renting out their homes often do not realize that homeowners insurance does not cover commercial activity such as renting it out. Airbnb offers certain coverage plans, but Proper Insurance points out that these plans are full of holes and still can leave homeowners on the hook. For example, if a guest hurts themselves staying in your home or is attacked by an intruder, they can hold you liable for any medical expenses or other costs which can find you find you fighting legal battles for years.

Uber and other sharing companies are pouring more resources into their insurance plans, with Insurance Business Magazine reporting that Uber claims their insurance reserves rose from $712 million in 2016 to $2.94 billion in 2018. But the sharing economy of today poses major risks for people who do not realize their current insurance is insufficient for their new gigs.

Rising to the Occasion

This failure of expectations to meet reality can lead to challenges. Insurance companies will have to improve their customer service record as they deal with paying customers who rudely discover their commercial activities are not covered by their current policies. But there are also new opportunities and markets.

A potential new market is the personal ridesharing insurance market which is already thriving among Calgary auto insurance brokers,  which offers insurance to ride sharers during that aforementioned dead period. Ridesharing policies are generally only offered by the large companies like Allstate and State Farm, and no company offers ridesharing insurance in all 50 states. Allstate has the most states, but does not cover Florida, Michigan, or New York.

Smaller companies, especially those who operate in more urban states where citizens are more dependent on ridesharing, thus should look into such policies. Companies which already offer such policies should be holding a candid conversation with their current customers to figure if they are ridesharing. Customers are often frightened to tell the truth as they believe that companies will immediately drop them, but it may be better to tell such drivers that they must pay extra to handle their increased liability.

Autonomous Vehicles and Insurance

If we are going to talk about how ridesharing and other disrupters can affect the insurance industry, then we must devote some time to the potential impact of autonomous vehicles given how ridesharing companies like Uber are betting hard on such developments. In a futuristic world where there are no car accidents thanks to AI-managed cars, what use is insurance?

First off, that scenario is not likely to happen for some time. In fact, auto insurance premiums may actually rise when there are only a few autonomous vehicles on the road, as they will still be hit by other cars and repairing them will be more difficult and expensive than a human-driven car. One estimate published by Bloomberg predicts that by 2035, less than 10% of cars on the road will be autonomous vehicles.

The more realistic scenario is that liability, and by extension insurance, will shift from the driver to the vehicle manufacturer. In theory, those manufacturers could decide to shoulder the cost of liability onto themselves which would be problematic for auto insurers. But a more realistic scenario is that of auto insurance being eliminated completely, it takes on a different form.

But as noted, that is more in the long term over the next decade at the earliest. In the short term, insurers have to pay more attention to the sharing economy and figure out how to address gaps in coverage. Enterprising companies should be seeking to offer additional services and educate customers on why their current policies are not sufficient, and what can transpire if they try to play commercial with personal insurance.