Sharing Economy Threatened By Insurers' Inability to Calculate Risk, Offer Coverage

Innovative business models can frequently be upended, not by direct assaults on their product or strategy, but by unanticipated threats to their financial processes and economic outcomes.

History is replete with examples, from Depression-era Chicago gangster Al Capone being convicted not of murder, but tax evasion; to Sony's technologically superior Betamax being supplanted by the corporate alliance supporting the DVD; to Apple's lightning-fast dominance of the music industry via a new distribution system called iTunes.

And so it seems possible, as the following article explains, that the sharing economy Airbnb model may be challenged by the fact that as more apartment, condo and housing units are converted to rental - or app-driven, on-demand contracting, the growth of the industry may be affected not by opposition from those concerned about the economic impact on people who need a place to live, but by the inability of the insurance industry to provide affordable coverage to owners, renters and corporate intermediaries.

Just as there may need to be a redefinition of what it means to be an employee or contractor, so there may need to be a new conceptual approach to the meaning of home. And ownership. JL

Rebecca Burn-Callander reports in The Telegraph:

Insurance companies don’t have enough data to work out the level of risk. Sharing economy business are all very different, so it’s difficult to work out a template that suits all of them. Even if it does find insurance, the premium is prohibitively high. Who bears the risk? The platform or the consumer?

The sharing economy is under threat because the insurance industry has not kept pace with the growth of the nascent sector, some of the leading players have claimed, warning that it’s “an accident waiting to happen”.

Bosses at cleaning company Hassle and home-exchange business Love Home Swap said that it was imperative that the insurance industry update its policies to meet the needs of the sharing economy and create products that were fit for purpose.

“It is very complex to underwrite sharing economy businesses, especially when they are still very small,” said Debbie Wosskow, Love Home Swap founder and chair of the industry’s trade body, Sharing Economy UK (SEUK).

“Traditional insurers haven’t moved fast enough and are struggling to create bespoke packages."

The sharing economy is made up of companies that connect people who want to rent their spare rooms, unused storage or space in their driveways with customers.
This presents a minefield for insurers, according to Alex Depledge, founder of Hassle. “Insurance companies don’t have enough data to work out the level of risk,” she said. “Sharing economy business are all very different, so it’s difficult to work out a template that suits all of them.”

The industry’s largest players, such as AirBnb, have been able to strike deals with insurers, but for emerging start-ups it’s a “nightmare”, said Ms Wosskow.
“I had meetings with 30 people in the early days,” she said. “We need new companies to move into this space and solve the issue. I think peer-to-peer, bespoke insurance companies might be the answer. Bringing back the old-fashioned mutual fund but for a modern time.”
In its report on the sharing economy published a year ago, the British Insurance Brokers’ Association (BIBA) said: “A sharing business often finds it hard to obtain insurance to cover customers or members as it has no insurable interest in the property, items or skills being shared. Even if it does find insurance, the premium is prohibitively high.”
“Who bears the risk? The platform or the consumer,” said Ms Depledge. “I’d like to see the easyJet model, where you can tick a box to insure your flight, rather than the platform carrying all the risk.”
Ms Wosskow aded: “One of my biggest objectives for 2016 is to make sure every sharing economy business can protect its consumers.”
"BIBA is committed to continuing to finding insurance solutions for these types of risks," a spokesman for the organisation said. "A number of our members do have schemes that cover these types of risk."