A new report commissioned by Lloyd’s of London finds a role for insurance in helping the sharing economy grow by clearly defining the risks in the peer-to-peer world. However, differing views on who should take on sharing these risks could prove a barrier to realising the sector’s exponential growth targets, the report warns.
According to the report (Sharing risks, sharing rewards: who should bear the risk in the sharing economy?), traditional insurance coverages may not be readily applied to disruptive sharing economy models as assets are fragmented, typically owned and shared amongst users. Also new multi-party relationships among platforms, providers and consumers draw further questions around who is ultimately responsible for managing and mitigating risk.
“In our work with sharing economy platforms, we’ve found that insurance not only protects against financial loss, but it also enables growth,” said Vincent Vandendael, chief commercial officer at Lloyd’s.
“Based on our findings, instilling consumers with confidence by clearly defining and protecting against risk can help remove barriers to engagement in the sharing economy. There is no doubt shared platforms are growing at a lightning pace, so it’s important that the insurance products created for these companies are able to grow and change with them – from a 10-person startup to a global disruptor.”
Insurers have long provided insurance for tangible physical assets, but in the sharing economy assets are often intangible such as intellectual property, trust and reputation. Assets in the sharing economy are also fragmented as they are owned and shared among various parties. Lloyd’s suggests this environment requires a different approach to risk management based on the behavioral economics of consumer preferences and attitudes toward risk.
According to the report, both sharing economy consumers and providers cite a number of concerns around risk – including personal safety, quality of service, damage to assets, theft and lack of sufficient safeguards in the event something goes wrong – which may prevent shared platforms from unlocking untapped supply and demand for their services.
“The sharing economy itself created a new risk landscape with many untested assumptions around who should be managing risks and liabilities, because of this insurance can play a significant role,” said Trevor Maynard, head of Innovation at Lloyd’s. “As these risks are addressed and written in our market, we see the power insurance has to give consumers peace of mind and providers and platforms confidence to grow.”
Lloyd’s commissioned the study to learn how participants in the sharing economy perceive and manage the inherent risks. The survey questioned 5,000 consumers from the U.S. (2,000), UK (1,000) and China (2,000), as well as representatives from 30 sharing economy companies.
According to the report, the global sharing economy, which was about $15 billion in 2014, is expected to grow to $335 billion by 2025, which is about the size of the traditional rental sector. China’s sharing economy is expected to grow 40 percent a year over the next few years. PwC predicts peer-to-peer transactions in the UK could grow by 60 percent in 2017 alone. The number of U.S adult sharing economy users is predicted to climb from 44.8 million in 2016 to 86.5 million in 2021.
The sharing economy’s peer-to-peer providers are involved in both consumer and business markets, allowing sharing of everything from autos to office spaces, as well as the risks in lending and insurance. The best known brands include Uber, Lyft, Airbnb, TaskRabbit, Lending Cub, WeWork and ZipCar. Others include HomeAway, Instacart, BlaBlaCar, Amazon Home Services (a professional service platform for households), Funding Circle (a peer-to-peer lending platform) and Friendsurance.
The critical issue is who is responsible for providing the insurance protection is a matter of debate with the majority of consumers (53%) expecting the sharing economy platforms to provide it, while most platforms think either the consumer (53%) or services provider (27%) should bear responsibility.
One reason it’s an important question is because the majority of consumers and providers say they are more likely to participate if insurance is offered.
Some findings from the report include:
Despite exponential growth, untapped supply and demand remain on the sidelines of the sharing economy:
- Nearly half of U.S. consumer respondents (49%) reported having never used a sharing economy product or service.
- On the provider side, just 8% of U.S. consumer respondents have provided an asset or service through a sharing economy site.
Sharing economy consumers are skeptical:
- Consumers globally cite personal safety (52%) as their greatest concern, but they’re also worried about quality of service (42%), damage to assets (42%), theft (40%), and lack of sufficient safeguards in the event something goes wrong (38%).
- Consumers and providers recognize the benefits of shared goods and services, including affordability and convenience, but for the majority of UK and US consumers (58%) the risks outweigh the benefits.
Consumers expect to be protected, but ultimately parties in the sharing economy have differing views on who should bear responsibility:
- Nearly all survey respondents (97%) assume some sort of risk protection is offered for consumers and providers, but only 28% reported looking in detail to ensure specific coverage exists for the shared service/product they use.
- The majority of consumers (53%) are looking to sharing economy platforms to provide protection, while most sharing economy platforms surveyed indicate that either the consumer (53%) or provider (27%) should bear responsibility.
Risk reduction could unlock sharing economy growth opportunities:
- The majority of consumers globally would be more comfortable using sharing economy services if insurance was offered (71%) and more likely to consider sharing or offering a service if insurance was offered (70%).
- Most current providers (78%) believe they would get more customers if insurance was offered.
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