Insurers Must Adjust to the Sharing Economy

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