Addressing Risk in the Growing Sharing Economy

sharing_economyWhether referred to as the “access economy,” “collaborative consumption,” or “circular economy,” the broader known “sharing economy” continues to grow and establish itself as a means of on-demand business that is here to stay.  PricewaterhouseCoopers estimates that the sharing economy will grow to more than $300 billion by 2025, from $14 billion in 2014.  This expected growth demonstrates a strong consumer appetite for the sharing economy’s current and future offerings.  As exciting and rapidly developing as the sharing economy is, it presents an expanding set of exposures, risks, and issues that risk professionals need to contemplate.  These unique risks may not be adequately covered (or covered at all) by current property and casualty forms and will require development of appropriate solutions.

Successfully navigating these issues will be necessary for the further advancement of the sharing economy. This article is intended to highlight a few of the sharing economy’s current growth patterns to illustrate the numerous ways the industry can grow.  The more detailed discussion on how to cover this expanding industry will be left to us to discuss together.

Growth of the Size and Scope of the Sharing Economy

One of the more obvious considerations that need to be made is the rapid growth of the sharing economy and how that will impact risks and liabilities.  For example, it is safe to say that in the coming years the number of Airbnb, Homeaway, and VRBO transactions will continue to increase, and as more customers opt to stay in short-term rentals as opposed to a hotel, the exposure to risk and liability will inevitably increase.  With its growth, companies will be forced to be more diligent in understanding their growing risk in a relatively new market.

The sharing economy’s growth will not only be evident through company size, but also the expanding breadth of offerings.  It currently revolves primarily around short-term rentals, car/ride sharing, peer-to-peer lending, and freelancing, but it is not limited to these verticals.  In the coming years we will see companies utilize the sharing economy platform in new ways, and although it is hard to predict, we can safely assume these will come with their own unique risk and issues to address, and the question of “How are these covered?”

Diversification

Startups and existing sharing economy companies are not the only ones subject to the changing exposures.  Established companies that previously have not been involved with the sharing economy are looking to emerge as new players in the market in order to stay relevant in the increasingly technology-heavy world and capitalize on new revenue sources.  The American Automobile Association (AAA) has recently entered the U.S. sharing economy with its Gig (car sharing) endeavor and Avis acquired Zipcar back in 2013.  They join an increasing number of companies that did not start in the sharing economy space, but are looking to enter the market; as they do, they will be presented with risks which were not previously contemplated in their risk management program.

There will also be shifts with current sharing economy companies that look to diversify their offerings.  Uber, who primarily provides a platform to move people, has expanded its offerings to move food (UberEats) and now to move freight (Uber Freight).  Airbnb, which is known for its short-term lodging platform, now offers to facilitate events and activities (“Experiences”).

With the growth of these expanded applications, it is not difficult to see why companies may look to enter or broaden their participation in the sharing economy; however, potential risks need to be fully vetted and considered.

Business-to-Business

The sharing economy is primarily thought of as a peer-to-peer transaction, but its application is not limited to that.  Flexe, a Seattle-based warehousing and logistics company, is an example of a business-to-business platform that operates within the sharing economy.  As the business-to-business sector grows alongside the peer-to-peer segment, it will contribute its share to the growth of this economy from both a financial and risk standpoint.

With the growth of the sharing economy and its many applications, the risk management and insurance industries will need to address the evolving definitions of risk.  As companies continue to evaluate the sharing economy as a viable platform to operate their business, they will need to identify and monitor their exposures and evaluate how to best mitigate risk and structure their insurance programs.  It will continue to be interesting to see how the sharing economy will impact the world’s economy and insurance industry.

Additional Articles and Resources

"Competition and Regulation Threaten Sharing Economy." Ecommerce Times

"The Current and Future State of the Sharing Economy." Brookings Institution India Center

"Uber, Airbnb and consequences of the sharing economy: Research roundup." Journalist's Resource

http://thepeoplewhoshare.com

Scott Krisvoy, Assistant Vice President, Account Executive

Scott Krisvoy is an Assistant Vice President, Account Executive with Old Republic Risk Management. He is responsible for leading the relationship with clients and brokers by marketing and underwriting casualty insurance programs for large corporations and group captives in the risk management marketplace. Scott assists ORRM's efforts on the West Coast.