Insurtech and risk management strategies for the sharing economy 

Digital technology has revolutionised every industry and created new business models that thrive on mobile communication and connected systems. Many innovative brands have led the way for the so-called sharing (or ‘gig’) economy, a growth sector that relies on technology to help entrepreneurs build alternative marketplaces for a wide range of services.

Thanks to the internet, low-cost cloud storage and the power and reach of smartphones and social media, buyers and sellers can bypass traditional channels and collaborate in ways that were previously impossible. And while this is a clear-cut benefit of technological progress, it is not without risks. 

“Insurance has a crucial role to play in protecting and nurturing the sharing economy,” says Simon Gilbert, Managing Director of Elmore Insurance Brokers, who specialises in technology businesses and emerging risks across the digital economy. “With the sharing economy, underwriters face a new risk landscape with a different buyer-seller relationship facilitated by technology. They need to understand and control the risks to protect their interests as well as ensure the long-term viability of those competing for a slice of the sharing economy.”  

Although the digital field is now wide open for any individual or startup to develop technology-driven services – be it for transport, accommodation, freelance work or any other business proposition – underwriting these new ventures is challenging because of the lack of historical data.

As Gilbert says, insurance traditionally protects individuals and companies that sell products or services in established markets with quantifiable risks and known business relationships. However, the technology platforms that support the sharing economy connect buyers and sellers in largely untested markets where it is difficult to determine liability. Moreover, as the pandemic has boosted the growth of digital businesses and alternative models, insurance needs to catch up.

“With any business trend, it takes time to understand the new commercial relationships and liabilities,” says Gilbert. “Because the sharing economy doesn’t conform to known and well-documented risks, it lacks reliable data to make informed underwriting decisions and price risks accurately. Exposure can vary greatly, which requires specialist skills and knowledge and bespoke solutions.” 

The search for reliable data and the right controls demands technology solutions that can support technology-based models. As Gilbert explains, the technology trends shaping insurance for the sharing economy include big data and data analytics, AI and machine learning, and cybersecurity techniques.

“Cybersecurity is an important requirement,” says Gilbert, “but it is often overlooked. The collection of data is essential for sharing economy businesses to operate smoothly, and sensitive personal details will always be at risk from accidental or malicious disclosure. Because platforms use technology to connect with customers, cyber events are serious operational and reputational risks. Cyber insurance is therefore a priority, particularly with the growth of ransomware and other threats, and businesses must ensure they have appropriate coverage.”

According to Gilbert, cover may need to span professional services, business interruption, property damage and intellectual property rights, which is why a ‘package policy’ is often the best solution. Such a policy will cover a range of different scenarios and thus minimise the risk of a claim falling into coverage gaps. 

Gilbert says that the Internet of Things (IoT), meaning the combined power of connected devices and digital technologies, is helping underwriters build the knowledge and precision to support the sharing economy, but that specialist teams are also needed to provide the right blend of human skills to mitigate risks. This is why, more than ever, brokers are essential intermediaries. 

“Brokers must shape insurance products and help manage change,” says Gilbert. “We are the innovators in the insurance industry, matching supply with demand, and must design products to fill coverage gaps and meet the needs of the sharing economy.”

As Gilbert explains, this goes beyond just product design and claims. In particular, as the threat of cyber events grows because of the reliance on digital technology, insurance must place more emphasis on prevention and remediation.

“Cyber security reviews, which include penetration testing and threat intelligence, add significant value to insurance,” notes Gilbert. “By testing for weaknesses in computer systems, networks and web applications, insurers can help prevent incidents, while threat intelligence will highlight evolving risks and how to neutralise them.”

As for remediation, Gilbert says incident response experts can mitigate the impact of an event and improve insurers’ understanding of evolving risks and threat actors.

In today’s fast-changing digital market, insurance must be active rather than reactive, preventative rather than passive. It must adapt to the new threat landscape by combining the latest insurtech with input from experts who understand the vulnerabilities of digital business and how to manage risks more effectively.