Last month, I talked about the potential opportunities the sharing economy can bring to the insurance market. This month, we’ll take a deeper dive into the sharing economy. We’ll discover new business models, explore how commercialization is becoming more prevalent and examine how sharing economy stakeholders are influencing the regulatory environment. To wrap it up, we’ll look at why the insurance industry is perfectly positioned to influence the evolution of the sharing economy.
Sharing economy companies are realizing tremendous success. Airbnb, for example, has served nine million guests since its inception in 2008; five million of those were served in the last year. While the media touts the rapid growth of such companies, part of their success is due to the profits that individuals are earning. Over the last three years, Airbnb’s top New York hosts have each grossed over $400,000. Within that same time period, its top 100 New York hosts have grossed $54 million collectively. Though the car-sharing business does not yield the same scale of individual profits, an owner of a high-end car can expect to earn approximately $1,200 a month.
The rapid market uptake of sharing economy ideas is occurring worldwide. Global thought leader Rachel Botsman reports that there is now at least one Airbnb host on almost every street in Paris. The ride-sharing company BlaBlaCar in Europe will soon serve more monthly passengers than Eurostar rail lines.
New models for a new economy
The success of sharing economy companies and their participants has led to an explosion in new business models. These models have two things in common:
- They bring people together through technology to exchange or rent access to goods or services.
- They all require unique insurance solutions to protect their businesses, assets and participants.
Boatbound, for example, connects boat owners with potential renters. The company states that most boats are used only 14 days per year. By renting out their boats, registered owners can help to offset the $10 billion dollars they collectively pay in maintenance and storage fees annually.
The sharing economy thrives on renting out unused capacity, but that is not limited to concrete things. Several companies have flourished by matching those who have to-do lists with individual service providers. Perhaps the largest of these is TaskRabbit. This company allows people to request services for everything from running errands to administrative assistance to the most popular task—assembling Ikea furniture.
A $26 billion market for insurers?
The peer-to-peer market alone is valued at approximately $26 billion. This market encompasses a wide variety of goods and services that are normally insured. However, the new business models and unknown risks have left many companies either uninsured or underinsured. Already, companies like Airbnb and RelayRides have run into difficulties over this fact.
The sharing economy represents a potentially profitable new market for the insurance industry. Innovative insurers have the opportunity to develop new products for this market and to help steer its development. Many insurers, however, are reluctant to take the lead. Most are waiting to find out not only what new risks will develop, but if the sharing economy is going to be around long enough to make new product development worthwhile.
Join me next week as I explore this topic further by looking at how this fledgling economy is becoming more commercialized.