Sharing economy platforms, whether they involve ride-sharing, short-term rentals, or gig work, share a common thread: dynamism. They're constantly shifting and evolving, presenting unique challenges for insurance providers.
This dynamism that makes the sharing economy so exciting also makes it a seemingly tough industry to insure. Insurance doesn’t exactly have a reputation for innovation, and traditional regulations, products, and models haven’t kept up. This struggle to keep pace with the ever-changing landscape of sharing economy platforms translates to higher premiums for growing companies—making it even harder to become profitable.
Why exactly is insurance so costly for sharing economy platforms? Let’s dive deeper to see what’s driving high costs (and how you can save).
Risk is hard to assess (and always changing).
Imagine trying to predict the path of a tornado—that's what assessing risk for sharing economy platforms can feel like for traditional insurers who don’t understand your business. The dynamic nature means that risk profiles can change rapidly. Insurance providers have to grapple with the uncertainty of fluctuating risk, and they often pass this uncertainty onto you in the form of higher premiums. Are they screening for risky drivers? Are hosts up-to-date on maintenance? They don’t know, so they’re going to assume the worst.
This volatility in risk can be exacerbated by external factors such as economic fluctuations, emerging technologies, or even unforeseen global events (like a pandemic). These external factors can send shockwaves through the sharing economy, making predicting and managing risks even more challenging, ultimately leading to higher insurance costs.
"In the realm of consumer insurance, significant resources are allocated to comprehensively understand and assess risk. However, in the shared economy, the responsibility for user screening falls upon the platform itself. It's essential to grasp that carriers invest considerably in assessing risk in a B2C context, leveraging various data sources and checks. When assessing risk on sharing platforms, the absence of such detailed information necessitates higher pricing to accommodate the unknown variables." — Paul Smith, CEO, DigiSure
Regulatory compliance varies by jurisdiction.
Navigating the regulations in the sharing economy sector can feel impossible. Compliance is non-negotiable and often means more layers of insurance coverage, further increasing costs. Different regions and jurisdictions may have varying requirements, adding complexity to the mix.
Each locality can introduce its own rules and regulations, making it a logistical nightmare to keep up with the ever-evolving legal landscape. Furthermore, the consequences of non-compliance can be severe, ranging from hefty fines to business disruptions. As sharing economy platforms expand into new territories, the burden of understanding and adhering to these regulations multiplies. Having an insurance partner who comprehends the complexity and provides tailored coverage solutions for everywhere you do business is vital.
Platforms have many different coverage needs.
Sharing economy platforms have unique insurance needs. Liability coverage, property insurance, and cybersecurity protection are just a few of the must-haves. These specialized coverages come at a premium, and the cumulative cost can be overwhelming.
Some of the coverage types a sharing economy platform might need include:
- Liability coverage to protect against lawsuits from customers or third parties.
- Property insurance to safeguard physical assets like vehicles or rental properties.
- Cybersecurity protection to shield your platform and user data from cyber threats.
The challenge lies in balancing the imperative to have comprehensive coverage with the necessity to control costs. This delicate tightrope walk requires a keen understanding of your platform's unique vulnerabilities.
Claim frequency and severity are unpredictable.
Accidents and incidents are part and parcel of any business, but they can be frequent and costly in the sharing economy. When accidents happen, they often involve multiple parties, leading to complex claims. The frequency and severity of these claims can drive insurance costs through the roof.
In ride-sharing, for instance, a single accident can involve not only the driver and passengers but also other drivers and pedestrians. Coordinating and settling these multi-party claims can be intricate and time-consuming, often requiring significant financial resources. Moreover, the reputational damage resulting from high-profile incidents can be as costly as the financial ramifications.
Insurance data remains disconnected.
Data alignment is crucial for insurance in sharing economy marketplaces. If your data is sitting in silos, it isn’t doing the work of better informing your accurate risk level and connecting that with your premium.
For example, if you aren’t viewing your insurance data holistically, something like screening looks like just another business expense—not an investment that ultimately lowers insurance costs. You could also use claims data to inform screening rules; maybe you find that renters under 25 are okay as long as their credit score is above 550, expanding your customer base.
Another way these can be connected is by dynamically pricing embedded insurance options by screening cohorts. Platforms could offer their low-risk groups of users a lower price on their embedded insurance options.
The need for data alignment spans various aspects of insurance programs, including:
- Screening and compliance
- Micro-policy management
- Embedded insurance
- Claims data
- Claims handling
- Overall insurance strategy
Insurance is costly for the sharing economy. Take steps to own your entire insurance program.
Sharing economy platforms face plenty of challenges that can send insurance costs soaring in a way other sectors don’t have to consider. From the unpredictable nature of risk assessment to the maze of regulations and the unique coverage needs of your business, the road to cost-effective insurance can be daunting.
So, how can you tackle these challenges head-on? You could try an in-house insurance team, but assembling the right team and resources would take a lot of time (and money).
When you partner with experts like DigiSure, you tap into a wealth of knowledge and innovative solutions tailored to your business model. Our insurtech expertise can help you lower insurance costs while ensuring you have the right coverage where it matters most.
Let’s build an insurance program that meets your platform’s needs. Request a demo to learn more.