INSURING THE SHARED ECONOMY

Transcription

1 INSURING THE SHARED ECONOMY

2 Robert J. Walling III, FCAS, MAAA,CERA Pinnacle Actuarial Resources, Inc. Principal and Consulting Actuary Monica Everett, CRIS York Risk Services Group

3 Outline of Presentation What is the sharing economy? Insurance needs in the sharing economy Opportunities and challenges Approaches to pricing Questions

4 What is the Sharing Economy? Wikipedia definition: The sharing economy is a hybrid market model (in between owning and gift giving) which refers to peer-to-peer-based sharing of access to goods and services (coordinated through community-based online services.) Source:

5 Companies in the Sharing Economy Transportation Space Money Goods Services

6 How many sharing economy firms (e.g. Uber, Lyft, Airbnb, Etsy, Angie s List, Ebay, etc.) have you used? A B C D Polling Question #1

7 Have you ever recommended a sharing economy firm to someone else? A B Yes No Polling Question #2

8 How Big is the Sharing Economy? Airbnb had 155M stays in 2014 Hilton worldwide had 127M nightly stays in same period At a $68B valuation in Q4 2015, Uber surpasses GM and Ford The Billion Dollar Club continues to grow Number of companies with billion dollar valuations increased by 10 in 2015, a 71% increase Revenue could reach $335B by 2025 Source: PwC; Forbes; Venture Beat

9 Who Uses the Sharing Economy? 44% of U.S. consumers are familiar with the sharing economy Only 19% of total U.S. population has participated in the sharing economy Of those who are familiar, most believe it makes life more affordable agree it s better for the environment feel it is less expensive to share goods than to own them But most feel the sharing economy experience is not consistent won t trust sharing economy companies until they are recommended by someone they trust Source: PwC survey of 1,000 adults in the U.S., conducted online, December 2014

10 Who s Actually Providing the Services? Why are people choosing the on-demand economy? Flexibility Freedom Augment regular income Underemployment Dominated by incomes below $50k 43% are under 50k Age 18 to 24 Age 25 to 34 Age 35 to 44 Age 45 to 54 Over 55 Less than $25K 25k to 49k 50k to 74k 75k to 99k 100k to 149k 150k to 199k Over 200k Source: PwC survey of 1,000 adults in the U.S., conducted online, December 2014 [VALUE] % [VALUE] % [VALUE] % [VALUE]% [VALUE]% [VALUE]% [VALUE]% [VALUE]% [VALUE] % [VALUE] % [VALUE]% [VALUE]%

11 On-Demand Workforce, a Free Agent Model? Significant competition among platforms Introductory promo offers for new drivers Both Lyft and Uber have offered special promotions for new drivers from competing platforms A 2014 survey showed 65% of on-demand workers earn from more than 2 platforms No restrictions on independent contractors from working for multiple platforms Source: Sherpashare survey conducted online 150 respondents, August 2014

12 Coverages for Sharing Economy Companies/Workers Workers Compensation employees and/or independent contractors Accidental death & dismemberment Short term disability Limited medical benefits??? General liability based upon the operations Cyber privacy, financial data, customer data Employment practices liability employees and/or independent contractors Auto liability owned, non-owned, sharing, both personal and commercial use, including livery Professional liability e.g. home health care

13 What coverages are most important to the sharing economy? A B C D E F Workers compensation Health benefits (medical, dental, etc.) Accidental death & dismemberment (AD&D), disability, etc. General liability Cyber liability Employment practices G Other Polling Question #3

14 Challenges Should independent contractors be considered employees and covered under workers compensation? Rulings on this matter are expected to occur mid-summer 2016 Many independent contractors work for multiple sharing economy companies in the same day Employee and independent contractor safety is a concern when delivering to certain areas Autos may be used for personal use in the a.m. and livery in the p.m. Financial profitability Turnover of independent contractor demographics (shifts in underemployment)

15 Should participants in the sharing economy be viewed as employees (part time?) or independent contractors? A B C D Employees Independent contractors It depends on the specific circumstances I have no idea Polling Question #4

16 Insurance Market Concerns Financial stability and profitability of the company many are reliant upon funding from investors Employees and independent contractors should be covered Cost for independent contractors can be multiples of employee payroll Employee and independent contractor safety how do you quantify the risk and exposure? Auto exposures who are they driving for at the time of the accident and how do you quantify the risk and exposure? Years in business Lack of historical data

17 Opportunities Technology many sharing economy platforms and independent contractors are quite tech savvy Membership/Community may lead to easier marketing of association/mga type programs Risk Savvy the entrepreneurial nature of most sharing economy platforms makes these business owners natural candidates for captives Marketing Tool the ability to offer insurance coverages may be a tool to attract the better independent contractors in a competitive sharing economy Cultural Shifts aging population needs help, more people don t want to pay full price for anything and are tech savvy enough to find the best price

18 Challenges for the Pricing Actuary Coverage Covered activities are harder to define and assess From which coverage form do you even start? (e.g. for Uber, do you use PAL or CAL? Gap coverage only or all losses?) International exposure? (e.g. Uber will drive to Mexico, not pick up) Control Independent contractors are harder to risk control Moral Hazard is there an incentive for the independent contractor to be careful? (e.g. Uber driver with reduced fares) Morale Hazard how is this going to be addressed? Adverse Selection will only the people that need the coverage buy it? (e.g. Medical Benefits, AD&D, disability) Comorbidities is the population biased in any way? (e.g. Worse health risks?)

19 Challenges for the Pricing Actuary Experience Rating Limited experience data often makes experience rating impossible Can experience from non-insurance resources be leveraged? e.g. Property damage in transit coverage, disability rates Can a frequency/severity model be constructed?

20 Challenges for the Pricing Actuary Exposure Rating Exposures Is a dollar of payroll or revenue or a mile drive the same amount of risk for a member of the sharing economy as the traditional economy? Transience may muddy how well the historical exposures predict the future exposures (akin to PEOs/staffing) Moral & morale hazard increased? What is the true exposure (e.g. a clothing maker on Etsy or ModCloth)? Benchmarks Which industry benchmarks are good starting points? How does Uber experience relate to taxis, limos, gray cars??? How does Grub Hub compare to Dominos? How does Airbnb relate to apartments, hotels, etc. Some specialty programs exist that may make good comparables

21 A Market-Comparable Approach Use an industry benchmark with reasonable adjustments for underlying exposures Captive expenses tend to be much lower than admitted carriers A risk/contingency margin is imperative for emerging markets and coverages This will tend to offset the reduced expense provision and result in premiums for the captive that are still competitive HOWEVER If the coverage cannot not be direct issued, finding a fronting carrier willing to take the risk with you may still be a material challenge

22 Challenges for the Reserving Actuary See Pricing Actuary slides Exposure how does frequency per exposure compare to experience for traditional companies? (monitor closely) Control are reporting lags longer? Control are claims being reported with hard to verify circumstances? Benchmarks which loss development benchmarks are appropriate?

23 Thank You for Your Attention Robert J. Walling III, FCAS, MAAA, CERA Monica Everett, CRIS

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