In the face of the sharing economy, new insurance models slowly emerge

By Richard Nieva , written on April 8, 2013

From The News Desk

Last week, I wrote about the issues that big, traditional insurance companies have with sharing economy companies like RelayRides, Getaround, Uber and Airbnb. The uncertainties are particularly difficult to navigate in the car-sharing space, where car owners list their cars on a marketplace like RelayRides, and a customer can rent it out.

The big insurance companies need some time to fathom the sharing economy, and are taking a wait-and-see approach to decide if they are going to play ball. For example, Allstate wants to wait until car-sharing "gains larger scale" to consider possible policies. But while those companies dawdle, there are a few upstart insurers that are already taking a very Internet-centric approach to insurance. They aren’t necessarily aiming to specifically solve the problem of insuring car owners for car-sharing, but they are trying to think of ways the insurance industry and technology can be more symbiotic.

There’s MetroMile, a San Francisco-based company that lets drivers pay by mile, letting them choose plans tailored to their driving habits. I covered the company's launch last December here. MetroMile tracks miles using a device called the Metronome, which plugs into a car’s onboard diagnostics switch – a standard port on all cars build after 1996.

The idea is to let people who drive less often own a policy that’s financially reflective of that. It’s an approach that’s certainly aligned with the car-sharing companies, which believe that people who drive less often shouldn’t have to own their own cars. “We think of them as our peers,” says CEO Steve Pretre, referring to car-sharing marketplaces.

Also intriguing, though more mysterious because it is still stealthy, is a UK-based auto insurance company called jFloat. Not only does jFloat aim to insure collaborative consumption, it describes itself as a “collaborative consumption self-insurance platform.”

Essentially, jFloat users come together and pay the majority of their premiums into collective pools of 100 people called “floats,” which consist of extended family members and like-minded people who fill out a survey on the company's website. The cohort can approve or deny people membership. When a member needs to pay a claim that's below a certain amount (which founder Kim Miller would not share), the money comes out of that pool. About 80 percent of a member's premium goes to the pool, and 20 percent goes to a reinsurer – insurance purchased by an insurance company – to handle claims that go over the maximum amount. Miller would not share reinsurance partners.

If a pool runs out of money, the cohort can decide whether it wants to continue on, or shut down the pool. If the amount of money in the pool dips below zero, an algorithm decides how much each member owes to get the pool back up to an amount where it can functionally insure the group. The hope is that it the cohort model will bring transparency to insurance matters, and that responsibility to the group encourages people to only make reasonable claims.

It’s certainly an unorthodox model, and Miller would not share all of the specifics ahead of the company's target invite-only launch in July. Miller says jFloat will close a round of under £1 million in a few weeks.

Who knows if Miller’s group experiment will work, but it’s indicative of a decidedly disruptive take on insurance.

Anthony O’Donnell, executive editor of the trade publication Insurance & Technology, thinks that there will be more upstart insurance companies trying to capitalize on the insurance issues of the sharing economy. As has been proven time and time again throughout technological history, a startup can do things an incumbent can’t do. “Startups have a cultural advantage,” says O’Donnell. “They don’t have a resource advantage. There’s no reason a traditional insurer can’t have an R&D department thinking this stuff up, but a lot of innovation gets quashed at middle management.”

The line between being technologically relevant and embracing technology wholesale is a tricky dance for incumbent insurers. Consider, at a macro level, the trajectory of auto technology, from Web-powered car-sharing marketplaces today to self-driving cars in the next few decades.

Certainly, insurers want drivers to be safe, because it means they have to pay out fewer claims, but if accidents, for the most part, are eliminated altogether, “their market completely collapses. Their business goes away," says Rob Coneybeer, a partner at Shasta Ventures, which backs RelayRides. This is because insurance companies will likely have to charge cheaper premiums against driving which becomes a lot less risky.

And if the sharing economy is indeed more than a passing fad, and instead is a shift in ownership habits enabled by the Internet, then the startups who are thinking about new models now will have a head start on the traditional insurance players. “There’s an opportunity there for sure,” says O’Donnell.