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Uberisation; the paradigm shift to a data-driven gig economy is both, a threat and an opportunity for insurers.

The threat is that data-driven marketplaces, like Uber’s ridesharing, will make it cheaper and easier for companies to perform the risk management tasks traditionally handled by insurers, Lloyd’s  of London CEO Inga Beale warned in 2015. The opportunity takes the form of new markets and new kinds of coverage.

Beale believes that data-driven products will disrupt the insurance market, The Financial Times reported. Many of those products will be created as a result of gig-economy solutions like Uber.

Beale’s belief is that digital marketplaces will allow specialised  underwriters and risk managers, such as those at Lloyd’s, to sell directly to consumers and small businesses. An example of how this would be accomplished would be an algorithm that analyses data, and creates specialised insurance policies for individuals working in the gig economy, such as Uber drivers.

Instead of being underwritten by a large carrier; that policy would be sold directly to investors through the marketplace. The algorithm would identify lower risk individuals and market their policies to the investors. Advantages to this model would be lower costs, and the ability to insure individuals in unique situations.

A danger for insurers is direct competition for both wholesale and retail business from unconventional competitors, including brokers and marketplaces like Lloyd’s. Many of these players will use the data-driven gig economy to identify customers and market to them.

Uber as a market for insurance

The two most visible gig economy brands, transportation provider-Uber and the rental solution Airbnb, offer a view of the opportunities and risks facing insurers.

Uber Technologies Inc. is expanding beyond ride-hailing to offer a variety of other services on a per-gig base. These include the courier service UberRUSH, UberEATS which delivers takeout meals and a delivery service for goods ordered from Walmart Stores in the United States. Each of these services is performed by a contractor with his or her own vehicle.

Uber has already used some of the data collected through its app to sell products to customers. Uber and a number of companies are leasing, renting and selling vehicles to drivers in the United States. The car payment is covered by taking a portion of the Uber driver’s earnings. Lending decisions are based upon the Uber drivers’ performance rather than credit ratings. Uber is also experimenting with a service that rents cars to drivers in London.

A logical extension of this would be an insurance premium that is paid by deducting a percentage from the drivers’ earnings. Insurers would base the premium on data about the driver collected by Uber.

One potential stream of revenue for Uber in the future, might be to identify its’ safest drivers; insure them, and sell the policies through a market like the one at Lloyd’s.

Uber as a risk management tool

Such risk-management might enable Uber to expand into the transportation of high-value items or dangerous goods. Examples of this might include delivery of jewellery, electronics or even cash. Uber would control costs by offering specialised insurance.

The potential liabilities from these activities are enormous. For example, would Uber be liable if a diner contracted food poisoning from a dish delivered by UberEATS? Who would be responsible if goods transported by UberRUSH were lost or stolen?

Liability issues are already dogging Uber in the United States where a judge allowed two women to sue the service because of sexual assault committed by its drivers. The women’s attorneys are arguing the responsibility for the assaults, Employment Screening Resources reported. Uber claims it has no liability because the drivers were technically independent contractors.

The basis of the lawsuit is essentially a risk-management issue. The women’s attorneys are arguing that Uber could have reduced the risk of rape by conducting criminal background checks on drivers. Uber is contending that the risks do not justify the costs of such checks.

Lawsuits over sexual assault; and a mass shooting committed by an Uber driver in Michigan, indicate that there are serious deficiencies in Uber’s risk management. That creates another kind of opportunity for insurers because the company is taking on serious financial risks that will require insurance coverage at some point.

Another dilemma facing Uber in the United States is that most auto insurance policies there,  specifically exclude commercial activities from coverage. That means Uber drivers would be violating laws that require insurance in 49 of the 50 American states.

Allstate Corp is attempting to rectify that by offering policies specifically for ridesharing drivers. The additional coverage costs between $15  and $20 (£15) a year, Insurance Business America reported. Future products that might be offered to drivers include coverage for products they are transporting.

Airbnb and Insurance

Short-term rental giant Airbnb also provides a potential market for a variety of products. An American company called Payfully is already using Airbnb booking data as a basis for factoring decisions. Payfully advances money to Airbnb hosts based on past booking data. Payfully takes the right to claim the revenue from future bookings in exchange for the cash advance.

Payfully Website Homepage
Payfully advances money to Airbnb hosts based on past booking data

An insurer would be able to use the same method to offer coverage to Airbnb hosts. One example of this would be a specialised liability policy that would cover the hosts’ guests and their belongings. The premium might be based on the number of guests or the risks involved.

Admiral is now offering host-insurance as an option for customers in the United Kingdom. That makes it the first insurer to enter the market which now consists of up to 50,000 homes on Airbnb alone.

Airbnb presents a special challenge for insurers because some of the risks involved are hard to quantify. An example of the questions that arise include: is a host liable if a guest is assaulted while walking to a rental in a “bad neighbourhood?” Who is liable if a fire at a rental destroys the guests’ possessions?

Who is responsible if guests trash an Airbnb rental? This seems to be the major risk Admiral is insuring against, largely because of numerous news stories about flats trashed by Airbnb renters. Admiral’s Host Insurance also protects the owner’s valuables; including jewellery, electronics, and artwork, for up to £5,000.

Admiral’s host coverage; like Allstate’s Uber and Lyft insurance, is designed as an add-on or rider to an existing policy. The idea here is to sell coverage to the gig-economy worker as both a business owner and a private individual.

Uberisation will transform the insurance industry by creating large new markets for coverage. Understanding it will be critical for insurers that want to tap new streams of revenue in the years to come.


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