Understanding the implications of shared vehicles on insurance
Insurance companies are tasked with balancing the risks with the benefit of extending coverage for non-traditional scenarios.
The sharing economy has landed with a bang, and it’s here to stay.
According to a Brookings Institute study, the global sharing economy is expected to reach $335 billion by 2035. These emerging business models are disrupting age-old industries and bringing along an avalanche of new considerations for insurance companies.
Transportation network companies (TNCs) like Uber and Lyft represent insurance coverage that can closely mimic a livery service, but what about peer-to-peer rental companies like Getaround and Turo/? These services enable private citizens to rent their cars to other drivers. Insurance companies are tasked with balancing the risks — many of which are currently not well understood — with the benefit of extending coverage for non-traditional scenarios.
One company’s exclusion is another’s revenue stream
As TNCs like Uber and Lyft started to grow, many insurers opted to exclude vehicles on personal auto policies that are used for any commercial purposes. It makes sense: TNC drivers are clocking many more miles on the road, so they’re more likely to get into an accident. In addition, more people in a vehicle opens up a range of associated exposures. However, this exclusion void created an opportunity for other companies to pop up and fill the gap. Though there is a market for this type of coverage, it’s not well established yet. Companies must look closely at the drawbacks and opportunities for shared vehicle coverage to retain or attract the greatest number of customers without creating exposure to undue risk.
Important considerations for the shared vehicle economy
A proactive, careful assessment is always the best approach, no matter what type of business you are writing. Here are some key tips to keep in mind as you evaluate where your company fits into this landscape:
- Clarify the details of your policies. Pay attention to the details of your policy coverage regarding exposure to TNCs. Know the details of the coverage you currently offer and what is specifically excluded.
- Refine policy language. Be more specific with exact terms as to what is included and excluded from personal and commercial auto policies. For some companies, it might make sense to allow TNC drivers while excluding livery providers.
- Pay attention to regulatory considerations. The role of regulatory bodies in state filings is extremely important in this evolving landscape. In the last few years, states have been paying closer attention to peer-to-peer ride sharing and adapting laws and regulations in turn. You must thoroughly understand the regulations for each jurisdiction regarding this issue before developing products or seeking approvals.
Bring in actuarial consulting support
Since the industry is still in a formative state, determining how to respond to opportunities in the sharing economy can be a mountain of work. If you are looking to expand or restructure coverage related to TNC drivers or other peer-to-peer services, outside actuarial consulting experts can help you get up and running ASAP.
Qualified consultants use their industry knowledge to provide data analysis support, product design guidance (including form and policy analysis, review, and development), and filing support that covers actuarial, product design, and state filing services. Because this area is evolving so quickly, waiting to hire or redirect in-house teams could cause you to drop to the back of the pack, even before bringing any related products to market.
As of right now, there is no straightforward path to achieve the best risk assessment and most accurate rates in the shared vehicle economy. The industry is adapting as we speak and re-calibrating itself to meet the needs of consumers and companies. However, by taking an organized, proactive approach, you can create products that satisfy your customers without exposing your company to unnecessary risk.
Michael Goldman is a Consulting Actuary with Perr&Knight. He has provided property & casualty actuarial services since 2003. To reach this contributor, send email to mgoldman@perrknight.com.
The opinions expressed here are the author’s own.
See also:
18 risks the insurance industry needs to consider in 2018
Emerging risks and how consumers and businesses are mitigating them