Shared economy sparks novel insurance responses

Peer to peer insurance and the shared economy have significant ramifications for the industry.

Perry Abbott, CEO and MD of Friendsurance Australia and Mitch Sweeney, product manager IAG subsidiary Share Cover, outlined the issues in a joint presentation at the Queensland Insurance Law Intensive.

Mr Sweeney described the shared economy as use of private assets for public consumption, saying the "unicorns" were companies like Airbnb, Uber and Airtasker. The shared economy offered an opportunity for people to make money from under-used assets.

Mr Abbott said he got involved with German start-up Friendsurance when seeking to invest in an online innovation. He met the founders, joined the board and obtained venture capital funding to develop the concept in Australia. He says Friendsurance is the world's first peer to peer (P2P) insurer.

He said while all insurance was fundamentally P2P, it had "big companies in the middle and no relationships" between insureds. "There has to be a financial relationship with another customer, or it's not P2P."

Friendsurance customers had to be willing to be involved in a product in which financial losses or gains were shared with a friends network of up to 10 customers. They received cash back if a year was claims free.

"Insurance is a massive household expense and people are looking for different ways to invest that money, but they still need coverage. We don't want to compromise the need for insurance, but give customers options to have different levels of risk, but with a degree of safety," Mr Abbott said.

Friendsurance Australia aimed to replicate the German parent company's model by "creating a fantastic relationship with customers".

"It's a good insurance product, well engineered and designed, but what impressed me most is .. it's about how we treat customers. We have Australianised the German product. It's a difficult market, so the bar is set high."

Mr Abbott was planning Friendsurance's Australian pilot launch for 2017.

Mr Sweeney said the industry was changing massively and IAG had established Share Cover – a specialist insurer for people doing short-term rentals via Airbnb and Stayz – to "future proof" the company.

"We must keep pace with what customers want," he said.

Share Cover started in September 2015 with a soft launch to Airbnb hosts. It offers hosts policies for single or multiple nights, six or 12 months. "It's affordable, and a fraction of the price [because hosts buy cover] purely when they need it."

Policies cover home & contents and $10 million in public liability.

Mr Sweeney said the cover was only available online, with policies delivered immediately the premium was received.

He warned most traditional home & contents policies were voided when a commercial transaction was involved.

Mr Abbott said one of Friendsurance's attractions was the opportunity for customers to participate in their own insurance program by taking higher deductibles and self insuring them among friends.

He said customers never paid more than their original premium because Friendsurance provided a safety net by "making up the difference". Customers "get a predictable insurance product and know how much they will get back if they are claim free".

While many people could not afford higher deductibles, Friendsurance enabled them to pool funds with people interested in taking on some risk, but in a safe environment.

The concept "deals with" the moral hazard risk, because Friendsurance changed people's behaviour. "It's a secure, managed way to save money on insurance [and a] product with a better loss ratio."

Mr Sweeney said Share Cover's relationship with Airbnb was "a funny dance". "It's built on trust, but our motto is people have accidents, so it's better to have insurance." Airbnb was "an amazing growth channel" for Share Cover. "They know hosts want peace of mind."

Mr Abbott asked about host guarantees, saying "a lot of things look and smell like insurance but are not".

Mr Sweeney said: "We recommend people read the host guarantee. It might look like insurance but it might not be. Our customers are worried about someone breaking a leg ... we have a higher sum insured, backed by an insurance company. How many people trust a free guarantee? I'll leave it at that."

Mr Abbott said insurers' level of compliance and regulation in Australia was "quite scary". In Germany, P2P insurance was not a new concept, mutual insurance was embedded in the German culture. There was a "heavy distrust" of major financial institutions.

"It's appealing to work with your friends to buy insurance together."

During a Q&A session after their joint presentation, Mr Abbott said 10 was the optimal number for a Friendsurance network. "You maintain intimacy with those people and are not going to make fraudulent claims." With more than 10, the claims ratio increased because the relationship between the network members was diluted.

"We want less claims [so] insurers make money and insureds pay less."

Mr Abbott said: "Insurance is a low engagement product. Buying a policy doesn't give you a rush of consumer pleasure. People buy insurance because they have to, but Friendsurance tries to provide a path to engage with other people to save money on insurance."

Asked what happened if you didn't have nine friends willing to join your network, Mr Abbott said Autoconnect operated like "Tinder for Friendsurance" to find other people willing to join a network. "You can change your friends; you can have them for just one night, if you like."

Networks were like "massive, viral daisy chains" but insureds were "generally static" within their networks.

Asked how Friendsurance funded catastrophic claim levels, Mr Abbott said "we buy products from the insurance market.

"We take the primary layer and make the same actuarial assessments as any insurer. It's a structured, secured program."

Asked whether Share Cover was likely to expand to other private assets used for commercial purposes, Mr Sweeney said: Have you been eavesdropping on our strategy meetings?" Share Cover was examining other elements of the shared economy, including transport and Airtasker, where one of the biggest jobs sought was "putting together Ikea furniture". But there was no product for Airtasker yet. "It will take a lot of work."

Share Cover was working with Airbnb on risk management to help hosts make their properties safer for guests.

Mr Sweeney said Share Cover would definitely be global in five years and could be white labelling – "sitting behind some major companies in the shared economy".

Mr Abbott said he would like to see a Friendsurance option offered on all insurance products, particularly home and motor, within five years. "In Germany, 77 insurers offer products convertible to Friendsurance policies."