A Data-Driven Approach to Insuring the Sharing Economy
Data-driven touchpoints offered by the sharing economy are rewriting the rules of traditional insurance, but there is work to be done to shift market apprehension.
Insurers have a long history of understanding risks in different industries. They have written various categories for decades and have market trend information on how they would likely perform from an insurance perspective.
Enter the sharing economy.
At first glance, there is reason for apprehension by insurers due to the lack of local loss history. The sharing economy is also an untested industry with minimal trend information and comprises of businesses that often have unique organisational structures and customer propositions. Unlike traditionally styled businesses that require coverage for conventional brick and mortar assets, in the sharing economy a business’s primary assets are its people, who require different types of coverage.
These qualities enable sharing economy businesses to be disruptors in a traditional market but don’t easily lend themselves to being insured using current metrics. There is an opportunity to take a nuanced, forward-thinking approach to insurance, considering historically, there has never been more access to greater amounts of data for an insurer looking at a new industry than is now available with sharing economy businesses.
There is a need and ability to change the way that insurance is measured, from a premium and risk perspective. Conventionally insurers will use risk data and trending based on historical insights to evaluate risk at a macro-level. This does not take into account the potential unique nuances of a business. Traditionally, the premium is then rated on a general factor, using general metrics like turnover and building value.
Compared to more traditional clients, sharing economy businesses have live tracking of activity, more available data points, and additional business analytics with which they can choose to provide to insurers.
Clients are also able to provide insurers with detailed information relating to business trends and user behavioural touchpoints. This intelligence can include data fields such as incident timestamps, how an incident occured and a breakdown of the demographic profile using the product. There is an infinite number of data touchpoints captured by sharing economy businesses, which have the capacity to be used in the development of insurance metrics.
The data capabilities of sharing economy platforms allow for the right insurer to access multiple data points and creates the ability to rate insurance on a more granular level. Additionally, it offers the potential to have a live premium rating utilising provided data.
Sharing economy insurance market trends
Overseas, insurers are involved in the sharing economy in a major way but to date, haven’t displayed that same risk appetite in Australia. In areas around the world where sharing economy businesses are operational and have had a period of trading history, we are able to show insurers the improvements that businesses have made in those environments. We can show the length of time the business has traded for, how many data points are available and the duration of journeys; ultimately, that is loss history, even though the losses may not be there yet.
In recent months, interest by Australian underwriters has been on the rise as a shift in perception about data as a viable insurance metric occurs. Some insurers are becoming more dynamic as they look to price sharing economy solutions for shorter intervals, such as quarterly, monthly and even daily. Whereas, traditionally, insurance premiums are determined on an annual basis.
From a capital and business growth perspective, this new dynamic pricing structure aligns with the accelerated business models of sharing economy companies. We are seeing some of these platforms grow over 20 percent since inception. The ability to forecast business risk on a more regular basis means that you’re pricing on the company as it stands presently.
While there is still apprehension from the Australian insurance market, positive strides are continuing to be made towards the use of sharing economy data as a viable insurance metric in conjunction with traditional metrics already employed.