Personal and commercial lines offered by traditional insurers are simply not underwritten or priced to cover the risks associated with car-sharing and P2P accommodation, where people are swapping between personal and commercial use of personal assets. The algorithms applied in standard pricing models are calculated on the basis of assumptions of the insured driver or homeowner, not the risk profiles of passengers and guests or even the combined personal-commercial risk profile of the insured himself. P2P insurance and microinsurance, however, are challenging the traditional models and seeking to interact with consumers more effectively to collect risk data, tailor products and price competitively.
One such UK-based P2P motor insurer seeks to reduce the cost of insurance by sharing insurance needs within a group of other drivers, usually family members and friends, enabling the cohort to co-manage its own pool of money and claims. The premium is calculated on the basis of the regular criteria and goes towards the group’s insurance fees and the group’s pool. Claims are paid out from the pool throughout the year, with the group’s insurance fees providing the buffer, should the pool run out of funds. Money is distributed to the group’s members at the end of the year in the absence of claims. Interestingly, this structure reflects a modern yet natural extension of the original concept from time immemorial – groups of individuals coming together to insure another individual, underpinned by a focus on personal responsibility and a readiness to trust and share losses – and all without the need for large intermediaries.
Similar platforms have proliferated in Canada, Germany, New Zealand and the US. Due to launch later this year, US platform Lemonade is backed heavily by VC firms Aleph and Sequoia Capital. Given the underlying equity structure of some of these startups and the current soft market, it will be interesting to see how their emergence will impact insurance M&A activity in the next three years.
There has also been a rise in microinsurance products which are more attuned to the behaviours of their customers. Based in the US, Metromile offers a usage-based product, centred on a ‘pay-per-mile’ insurance model. Supported by an app and a tracking device installed in the vehicle, Metromile charges its customers a monthly base rate and an additional amount based on the miles actually driven. Recently, the insurance intermediary has integrated with Uber to offer Uber drivers its product, where the platforms interact with one another to automatically detect the beginning and end of a journey, thereby distinguishing between personal miles (covered by Metromile) and commercial miles (covered by Uber’s own commercial policy) driven. The product is tailored broadly enough to cover specific risks in the period whilst an Uber driver is looking for a ride and would have been particularly useful to our driver in the above scenario. There are also some sharing companies that have aligned with a number of established insurers to fill coverage gaps by creating partnerships, like the BlaBlaCar/AXA and Lyft/MetLife relationships announced last year.
Whilst it presents its own unique set of risks, P2P accommodation has also seen a rise in similar top-up policies, including from Belong Safe, a UK fintech platform founded last year. Such on-demand, ‘pay-as-you-go’ policies are gaining popularity amongst the AirBnB community, where a growing number of hosts are finding their traditional home insurance policies being invalidated for failing to disclose that their homes are being used for profit, leaving them to pick up the losses in the event of damage to their homes or where a guest injures himself during a stay.