Be Ready for Disruption – Canadian Institute of Actuaries
Article Synopsis :
The sharing economy, also referred to as the on-demand economy, has gained traction in the past five years.
In “The Sharing Economy – Be Ready for Disruption”, The Canadian Institute of Actuaries examines the sharing economy’s impact on the insurance industry. Though Canada-centric many of the insights apply globally.
The report cites PwC data estimating the sharing economy will grow from $15B today to $335B by 2025. This massive growth will impact the general insurance industry by re-defining customer needs, impacting traditional business operations, and introducing peer-to-peer (P2P) as a new threat. Per the report, for an industry to be open for P2P disruption, five factors need to be considered:
- Critical mass: There must be sufficient volume to make the disruption worthwhile.
- Unmet consumer need: Consumers aren’t satisfied with the service being provided and are open to alternatives.
- Simplicity: Consumers are looking to get services that are easy to use and convenient, including online and mobile transactions.
- Lower cost: Consumers are price conscious in this economic environment.
- Idling capacity: If there is idle capacity in the economy, which can be utilized, the sharing economy can provide an avenue to monetize it.
How will sharing impact traditional products such as personal auto insurance? The report suggests exploring P2P models to drive innovation toward more cost-effective personal and commercial policies.
The sharing economy is creating new demand for coverages addressing the commercial use of personal vehicles and homes. Many of the new products entering the marketplace are offered on a usage-based pricing structure.
Linking mileage-based applications with P2P platforms opens the door to data collection which was not possible in the past. Many of these new products require advance pricing models, placing new demands on actuaries.
Insurers must be agile to play in this space. Winners will align sharing economy principles with overall brand and customer-experience objectives while working with governments and regulators to generate new products creating value for customers.
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Digital Insurer's CommentsDigital technology de-complexifies everything, insurance contracts included. Eventually.
Uber and AirBnB have re-defined conventional markets introducing new forms of sharing that are trustworthy, easy, and relatively cheap. Nothing to it.
P2P is coming to insurance, offering new options for primarily millenials who already own completely different notions about what it means to hail a cab or rent a room. Today insurers compete with insurers; tomorrow insurers will compete with (former) policyholders.
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