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Nathan Golia
Nathan Golia
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Insurers Must Adjust to the Sharing Economy

Stories of Uber drivers unable to get insurance illustrate a need for product innovation to match new consumer and business needs.

In urban areas, ridesharing is increasingly popular: People without cars use apps like Uber, Lyft and Sidecar to locate car owners who can give them rides. The companies have faced myriad legal challenges from governments and other entities that are wary of their nebulous space somewhere between a cab and a social network. And, a report in today's San Francisco Chronicle finds that many participating drivers are finding the same limbo to be incredibly problematic when dealing with their insurance companies as well.

In the aftermath of a lawsuit against an Uber driver striking and killing a six-year-old San Francisco girl -- allegedly because he was driving distracted by his mobile app -- many other drivers are finding that if even if they get into less serious accidents during a rideshare that their personal insurance policies do not cover the loss. And commercial insurance, which California law has interpreted as the correct coverage option -- is often out of financial reach for rideshare drivers.

[Insurer offers premium discount for text-blocking device installation]

While it is unrealistic to expect insurers to simply cover rideshare accidents under a personal policy -- let alone expect all of them to judge and charge for ridesharing risk the same way -- what we see in this issue is an example of insurers not providing the right kind of product for a risk.

Certainly different companies will have different ideas about the level of insurance required for a rideshare driver. And as the nebulous space gets more defined, the question of what's similar and different between these kinds of drivers and traditional cab drivers will (hopefully) get answered at the various levels it needs to be.

But just as technology disrupts the insurance industry when it comes to customer interaction, for example, it also is changing the face of risk more generally. Insurers need to be prepared to provide cover for new products and services that are being developed by an increasingly innovative tech sector. If not, another disruptor could emerge to cover the risk. For example, MetroMile charges urban drivers based on how far they drive and aims to bring down the total cost of ownership of a vehicle by encouraging transportation alternatives. The customer profile of such a driver also is an attractive target for insurance companies, by the way: They tend to be affluent professionals who also have other insurance needs. Are they going to be interested in calling a traditional insurance provider?

The lesson is that perhaps the kind of insurance product that meets a rideshare driver's needs isn't a traditional six-month policy. Trucking insurer Canal Insurance is experimenting with per-trip insurance, using mobile phones to establish the contract, verify the data, and collect payment. What if a new insurer -- or a rideshare provider itself -- simply tacked on an "insurance" charge to each trip, providing their fleet of drivers with peace of mind and used their app -- which is already on each driver's mobile phone -- to verify length and location of the trip, as well as the drivers' speed and braking predilections on the road, and adjust future charges dynamically? That's customers lost to the traditional insurance providers.

An aside: My family and I stayed in a house we found on Airbnb, the homesharing app. At one point, a microwave shelf collapsed in the small studio we stayed in and the heavy machine crashed to the floor while we were sleeping. There were no injuries or damage to any of our possessions, or even to the apartment itself (other than the shelf, of course) -- but if there had been, what if we had to make a claim against their homeowners/umbrella insurance policy? Who would've been out of luck -- us or the homeowner?

Such a horror story -- not to mention the sad case of the girl in San Francisco -- does not mean that these innovative sharing programs have to be objectively bad or a minefield for insurers. The same technology that enables all of them, of course, can be leveraged to develop insurance coverage that provides peace of mind and financial security and allows us to continue to develop new economies without fear of ruin. Insurers must be mindful of these possibilities and embrace them wherever possible -- otherwise new players will have a point of entry into the market.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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Becca Lipman
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Becca Lipman,
User Rank: Author
1/31/2014 | 7:58:35 PM
re: Insurers Must Adjust to the Sharing Economy
I wonder how much this car-sharing space will evolve over the next few
years, as I have no doubt it will expand. The savvy insurance product
developer must be flexible enough to tailor their policies accordingly.

Your story about the falling shelf brings back memories of the Allstate commercials that highlight interesting ways you are and aren't covered. Particular this one: http://www.youtube.com/watch?v...
Becca Lipman
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Becca Lipman,
User Rank: Author
1/31/2014 | 7:52:40 PM
re: Insurers Must Adjust to the Sharing Economy
Kathy, brilliant connection between legal banking sales in Colorado and this insurance coverage gap. Old solutions are simply not keeping up with new problems. Niche players will be descending on this market, threatening to take away customers if the big players don't act quickly. Hopefully that fear will push for faster resolution.
Nathan Golia
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Nathan Golia,
User Rank: Apprentice
1/31/2014 | 2:11:25 PM
re: Insurers Must Adjust to the Sharing Economy
Thanks Ken. I agree that this risk shouldn't be that hard to price and figure out a solution that works for both carrier and customer. That's why it's so unfortunate that it's come to the situations listed in this article. One would hope a savvy insurer in California would be able to develop a product that matches the risk instead of allowing drivers to go uninsured.
Swmccon
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Swmccon,
User Rank: Apprentice
1/30/2014 | 9:07:57 PM
re: Insurers Must Adjust to the Sharing Economy
Interesting article and comments. The question is how will the state insurance commisioners weigh in on these alternative methods of risk coverage. Has anyone heard of positions on this?
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
1/30/2014 | 2:16:45 PM
re: Insurers Must Adjust to the Sharing Economy
Providing insurance for a rideshare driver shouldn't be too hard. It could be "riseshare usage-based insurance." With telematics, insurers can determine how much a car is driven, how it is driven and where it is driven. If an insurer could work with Uber, for example, and get access to user data, it would be able to determine when the driver was picking up an Uber user, or when the driver was simply driving to the store on a personal errand. Based on the driving stats, the insurer could provide true usage-based coverage for Uber users.
kjhittel
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kjhittel,
User Rank: Apprentice
1/29/2014 | 8:44:28 PM
re: Insurers Must Adjust to the Sharing Economy
Great piece, Nate. But if carriers are already insuring taxi cabs, that should be a pretty good start, shouldn't it? And pricing should be better for Uber et al., because they're likely to be much safer/better risks than the cab companies. 'Course I live in NYC and am intimately familiar with the gung-ho and reckless nature of our cabies...
Kelly22
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Kelly22,
User Rank: Author
1/29/2014 | 7:20:20 PM
re: Insurers Must Adjust to the Sharing Economy
You're right, Nate. These sharing apps/services are only going to grow. If traditional carriers don't rise to meet their needs (and Kathy is likely right as well in saying some of them won't), then new businesses will. Canal's tactic sounds pretty interesting and like something that could appeal to rideshare providers. If insurers don't respond to the sharing trend, they could lose the rideshare market to that kind of strategy.
KBurger
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KBurger,
User Rank: Author
1/29/2014 | 6:25:44 PM
re: Insurers Must Adjust to the Sharing Economy
Very interesting, and really thoughtful analysis here, Nate. I agree that this is the type of niche/opportunity that non-traditional players will be able to identify and possibly capitalize on (if they are able to navigate the regulatory issues) -- and in fact there probably will be carriers that simply do not want this kind of business due to the risks. Still, the risk/underwriting aspects of this emerging market certainly could be managed -- as you suggest, it's more about understanding what these new businesses and the "sharing economy" entails and responding to that broad trend. Conceivably, eventually this could also be another wrinkle in insurance distribution, another way of seeking and selecting quotes. The current state of affairs also reminds me of the emerging situation in the banking industry related to legal marijuana sales in Colorado and Washington -- current banking law prohibits use of credit or debit cards for payments and also restricts the ability of the legal retailers to have commercial bank accounts. There's a disconnect that a nontraditional player is likely to be able to take (legal) advantage of.
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