The growth of the sharing economy holds lucrative possibilities for insurers
When it comes to consumer goods and services, we increasingly love to share. According to a report by PwC, the UK sharing economy is set to grow at a rate of 30 per cent per year over the next 10 years, facilitating a whopping £140bn worth of transactions per year by 2025. From leasing unused power tools, car sharing, or renting out your home with Airbnb, the sharing economy fulfils the needs of individuals when buying just isn’t an option.
The convenience, value, and environmental benefits of the sharing economy are all important contributing factors to its success. However, it will never be possible to escape the fact that we just don’t treat other peoples’ belongings with the same care as our own. Sharing has therefore opened up the insurance business to a whole new kind of market.
I don’t need a drill, I need a hole in my wall
It’s official: we either don’t want to – or can’t, buy things any more. Car ownership is down amongst young people, and the increasing number of renters has created a sector of society for whom it simply isn’t practical to buy and store large amounts of consumer goods. The internet and smartphones have made it possible to easily form networks of people wishing to lease or rent out their things. Individuals save money by not having to front the full cost of items that they will only use once, waste is limited, and those who own goods that they rarely use have the chance to make a bit of extra cash. It’s a win-win for all involved.
Several businesses have seized the chance to capitalise on the sharing economy, by disrupting the traditional business model of ownership. Along with big names such as Airbnb and Uber, one such company is UK based peer to peer lending platform Fat Lama, which recently raised £7.15m in its first round of venture capital funding.
No time for llama drama
One of the main factors prohibiting people from lending or renting their possessions is the fear that they will be lost or damaged. In fact, insurance concerns us to such an extent that it has seriously impeded the uptake of car sharing in the UK, according to one of the founders of France’s hugely successful car sharing platform, BlaBlaCar.
The success of the sharing economy therefore largely depends on protecting peoples’ items in order to secure their trust and peace of mind. This fact was well understood by Fat Lama, who, when starting their business, hoped to integrate insurance with every item rented out through their platform. However, inquiries made to legacy insurers were unsuccessful due to the unconventional nature of the policies being sought. The startup therefore partnered with an Insurance Technology (InsurTech) business to create a new kind of insurance product. This automatically provides each lister on the Fat Lama site with a policy that they hold directly with the insurance company. All items rented out on the Fat Lama platform are insured up to a maximum of £25,000, the cost of which is included in the platform’s fees.
New product, new opportunities
Fat Lama is testament to the power of harnessing disruptive innovation in business. By partnering with an InsurTech, the startup created an effective new business model which is able to respond to changing consumer needs. The growth of the sharing economy suggests that many people are willing to rent out their items, and – with insurance now mitigating the effects of theft or damage – there’s nothing to stop them from doing so. A new kind of insurance product has proven to be a simple and effective solution to a business problem.
What’s more, this example clearly demonstrates the ample opportunities that exist for insurance businesses in the sharing economy. As this market grows, and more of us begin to lease or borrow items, the role of insurance is only set to increase. This is a fact which incumbent insurers cannot afford to ignore.
What are your thoughts on the sharing economy? Would you rent out items on a daily basis, or make use of car sharing? Are legacy insurers blind to the demand for different kinds of products? Share your opinions.
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