As companies grow, their risk management programs generally evolve with them and the insurance industry has gotten used to working each year (once a year) to update the plan or add new features. Companies used to grow at a certain rate and their insurance programme evolved along the same pace. For traditional industries, it can take years to move from one structure to the next. This works very well for the insurance industry which is the quintessentially traditional industry.
Skip forward to now, today. Companies operating in the new world of the sharing economy and gig economies – the tech lead platform businesses, where assets or services are provided by one side of the platform and the clients clamour to use them on the other side – growth rates can be high, extraordinarily high for a few companies. Suddenly this scenario is very different for the insurance industry. They want Sharing Economy Insurance. Insurance built for the sharing economy.
For the companies operating in the new sharing economy, their risk profile evolution happens at a much faster rate. Because of this many of the risks they face are new exposures that are unfamiliar to the commercial insurance market. Not new as such, but upside down or put on their side. The ‘traditional insurance’ companies and markets can’t seem to grasp the sameness, they only look at the differences.
The result of this is that these sharing economy companies tend to be faced with markets that find them less understood and especially as they expand quickly, leaving the insurer capacity limited, meaning that the pricing may be higher and restrictive.
The upshot is that the programs are hard to place and then can be short lived as the costs push them quickly towards being ‘self-insured’.
Are their alternatives?
Captives, a useful insurance vehicle, can provide sharing economy companies with an alternative and many benefits, these are the reasons why companies form captives:
- Insure otherwise uninsurable risks
- Control your insurance costs
- Gain more control over cash flow and budgeting
- Self-insure your co-pays
- Adjudicate and control claims
- Retain investment income
- Control the investment of the net premium
- Manage unpredictability of future losses
- Reduce unpredictability of uninsured losses charged to earnings
- Create a strategic advantage in negotiating with insurance companies
- Generate underwriting income
- Generate investment income
With the ability to gather significant amounts of data with ease, firms with sharing economy models are prime candidates to support and operate alternative risk structures to solve their unique insurance needs.