We’re all familiar with social networking in some form; Twitter, Facebook, LinkedIn, Flickr, YouTube, etc. now play a large part in everyone’s lives. What you may not be as familiar with is the new breed of social sharing application; those that allow you to hitch a ride to work with a stranger instead of burning up petrol to make the same journey, those that allow you to borrow someone’s house or even just a place on their couch. Some of the best examples of these applications are carpooling, couchsurfing and airbnb.
These applications make perfect sense. They enable people to trade off something they have for a small benefit in return. Lift shares are usually about splitting the petrol money. Borrowing a house normally comes at a small charge. Couch surfing involves putting someone up in the here and now in exchange for someone else putting you up at a later date.
The Insurance Conundrum
The trouble is that they fall into an insurance grey-area. When you share your car and the passenger contributes to the cost of the ride – this can be seen as a commercial transaction and that means the driver needs costly insurance; much more costly than the benefits of sharing a ride. So either the driver skips on the coverage or the passenger returns to their own vehicle.
Yet, these arrangements are rarely commercial in intent. The passenger in a car share arrangement normally doesn’t make the driver a profit; they just reduce the burden of commuting. In fact it could be argued that the passenger is lowering the risk of the driver falling asleep when driving solo.
These sharing arrangements are only likely to become more common. The cost of living in the developed world is sky-rocketing and salaries are simply not keeping pace. The Internet has made it easy for people to connect with strangers and share. So far, it seems that this is working well from a social perspective; couch surfers and car sharers tend to be courteous and honest guests rather than ne’er do wells.
A new class of insurance is needed to meet the needs of a sharing society. Classing these transactions as business transactions misses the point and overstates the risk to the insurer. Selling commercial packages might be profitable but it’s likely to lead to higher levels of fraud and an increasingly dissatisfied customer base.
The insurer that comes to grips with this space, perhaps using a model similar to Insure the Box; is likely to find themselves with a huge potential market. A deal struck with application makers to ensure that the marketing for these products is in the right place and big wins are likely.
One thing that needs to be carefully considered is how to get the party benefiting from the sharing arrangement to contribute fairly towards the insurance costs.