The sharing economy represents a new $26 billion market for the insurance industry. At a time when profits are down and price has become a significant competitive tool in traditional insurance markets, the emergence of the sharing economy can provide insurers with the opportunity to drive profits in entirely new ways. To help determine how insurers should get involved, this blog series takes a close look into the growth and regulation of this dynamic economy.
Last week, we looked at the expansion of business models in the sharing economy. This week, we’ll explore the commercialization of that economy.
Micropreneurs make their own opportunities
At the individual level, sharing economy participants are looking at expanding their profits. For example, property managers are starting to participate in sites like Airbnb. As they see individual profits rise, hosts are investing in additional properties specifically for the purpose of renting them out. The same thing is happening in the car-sharing market, where individuals are starting to invest in either high-demand cars or small fleets of cars for renting on sites such as Getaround.
Corporations invest in this non-traditional market
At the corporate level, traditional car rental organizations are making significant investments in car-sharing companies. Avis, for example, purchased ZipCar for $500 million and rents out the company-owned fleet in over 20 cities. ZipCar, in turn, owns a share of Wheelz, giving Avis access to the peer-to-peer car-sharing market.
Car manufacturers, such as Daimler Chrysler, Toyota and General Motors (GM), are also taking advantage of the new market to drive profits and expand brand awareness. GM is not only an investor in RelayRides, but also an active partner. The corporation’s 15 million OnStar subscribers can link their cars to their RelayRides account. As a result, these subscribers can now rent out their cars without having to meet the renter in person. Instead, the renters can unlock a car through a smart phone app or by replying to a text. The partnership strengthens the offerings of RelayRides and provides a convenient way to expose potential car-buying customers to GM’s cars and OnStar services.
Corporations are also customers
Corporations are looking at the sharing economy as more than just a revenue generator or new marketing mechanism. They are starting to consider sharing economy models as solutions to real business problems. Wal-Mart, for example, is planning to better compete with Amazon and cut transportations costs through expansion of its in-store deliveries. To help match the speed of Amazon, Wal-Mart is exploring a model in which customers would provide the deliveries in exchange for a percentage off of their bill.
Companies, such as Accenture, are tapping into the sharing economy to provide workspace for its employees. Through LiquidSpace, employees can use a simple online reservation system similar to that of OpenTable to reserve cubicles, offices or meeting spaces wherever they are located at the time.
Investor interest grows
Perhaps the biggest indicator of commercialization is the funding that many sharing economy companies have secured. This funding comes not only from corporations but also from investors worldwide. Airbnb’s investors include Andreessen Horowitz, Jeff Bezos and Ashton Kucher. RelayRides benefits from investors that include GM and Google Ventures. Uber just became the recipient of Google Ventures’ largest investment—$258 million.
Proactive insurers will gain first-mover advantage
The sharing economy is gaining significant traction both in market uptake and in commercialization. While many worry that too much commercialization may undermine the sharing economy’s core values of trust and connection, it could help to ensure that the market remains viable by infusing funding and structure into the economy.
The insurance industry is perfectly poised to help build this structure by using its expertise to minimize risk and create products that fit the unique needs of the sharing economy. Those insurers who are first-movers will have the unique opportunity to influence how sharing economy business models evolve, reduce risk and protect themselves from unseen consequences.