August 22, 2018 by By Danielle Kubes
Bassim Elbatniji was driving his Toyota Prius around San Francisco in the fall of 2013 when his Uber app pinged: someone wanted a ride. He picked up two friends, Nikolas Kolintzas and Jason Herrera, headed for a night out among the trendy bars and restaurants near the water. All was going well until Elbatniji collided with another vehicle. Kolintzas and Herrera had to be transported from the scene in ambulances, suffering concussions, swelling and abrasions. Uber instructed them to file with Elbatniji’s personal vehicle insurance. But his insurance denied the claim, saying they specifically excluded instances of driving for profit.
So Kolintzas and Herrera sued Uber for negligence in training and supervising its drivers, for breaching duty of care to provide a safe and fit vehicle and for failing to alert its drivers that they require valid insurance.
A series of court battles just like this one arose across North America over the last decade as the gig economy disrupted industry after industry, from taxis and hotels, to landscaping and dog kennels. The sharing economy is only expected to grow — PwC estimates the sector will reach global revenue of $335 billion by 2025.
“We need to understand that more and more professionals aren’t going to be working as an employee to a company but are actually going to be business owners, and that’s because of this trend with people being empowered and in charge of their own career with freelancing,” Matt Alston, co-founder of online insurance broker Surex Direct, says.
Brokers will have their hands full as opportunities crop up and they guide overwhelmed gig workers through the maze of insurance providers and products. And a maze it is. As the sharing economy expands, personal and commercial interests that existed largely separately in the past are now conflating, creating wide grey areas of liability.
“What you have is you have your own personal car, your own personal home, but you’re using it for a commercial purpose part of the time and traditional insurance wasn’t set up to handle that,” says Daniel Reid, an associate at Harper Grey LLP, who has worked closely on insurance issues arising from the sharing-economy.
Perhaps the most critical role brokers can play is educating clients, as most gig workers are unaware, or try to ignore the fact, that they are likely to need additional coverage for their side hustles.
Many Canadians, for example, are unaware that renting out their home to short-term tenants without disclosing it to their personal home insurance provider may disqualify them from an unrelated claim. Similarly, many ride-sharing drivers don’t know that they must still inform their personal auto insurance provider of their job, regardless of any additional coverage.
The confusion is especially strong among emerging businesses. Reid, for example, sees a high number of food-delivery startups in British Columbia, where people will hop in their car or on their motorcycle to deliver a meal. Many incorrectly think since it’s just food, and not a passenger, that a vehicle doesn’t need to be covered. Clients must be informed that they must seek protection if they’re using their car to make any income whatsoever, he says.
The insurance landscape is baffling enough, seeing as it changes every year as new sectors of the sharing economy unfold. Beyond that, a fundamental issue is that most people aren’t taking themselves seriously as gig workers.
“A lot of times people think, ‘Well I’m not really a business owner, this is kind of a hobby.’ But people need to realize that as soon as you provide a service and get compensated a penny for that service, then you do have a business,” Alston says.
Only by helping clients see themselves as part-time business owners will they feel comfortable spending money on protecting and securing their livelihood. Even if clients are confident in their new roles, they’re usually confused over liability. A quick glance through online forums demonstrates just that.
If a guest puts tinfoil in your microwave and destroys it, for example, will Airbnb’s insurance replace it? No, as a person with username JonYork wrote in an Airbnb hosting forum in 2016. Instead, he claimed, Airbnb asked the guest about the incident and, when the guest denied fault, washed their hands of responsibility. Even if the guest had admitted to blowing up the $300 microwave, the user was unclear if Airbnb’s insurance or the guest would have been responsible for covering it.
Many circumstances are far more serious. Poster Mblawson2 wrote, for example, that he’d been renting out his home for seven years without incident, until a senior fell off the bottom step of his porch and had to go to the emergency room. Although he repeatedly contacted Airbnb’s team, they provided no resolution and he was anxious that the elderly gentleman might sue.
Brokers have a duty to ask each new client about their participation in this new economy, and then explain their obligations.
“From the standpoint of brokers and from the standpoint of people that are part of the gig economy, it’s really important that they have that communication,” Reid says. “Brokers should be asking those questions: Do you use your house, your car or anything else for part-time income like the gig economy, renting it out or Uber driving? Or anything like that.”
In 2016, the ride-sharing insurance gap was largely solved when Ontario and Alberta approved regulatory changes to allow commercial fleet policies to cover ride-share drivers. Uber and Lyft, two of the most popular ride-sharing services that together operate across 17 Canadian cities, now automatically enroll drivers in additional coverage through their app.
Interestingly, it was broker channel companies that were most responsive in creating new and flexible products. Alston, for example, remembers a surge of Uber drivers shopping for policies on his online brokerage. That’s not surprising. Clients flooded his website when searching for an appropriate policy because they couldn’t find what they were looking for with direct channel companies, he says.
In addition to the lack of suitable products, many insurance companies are lagging behind with their intimidating websites, outdated communication systems and slow response times. These are some of the reasons why 55 millennial gig workers recently told Cake & Arrow, a New York-based customer experience design agency, that they don’t trust the insurance industry. Rather, they find it secretive and don’t have faith their claims will be resolved.
As long as the industry is perceived as opaque, any broker who offers transparency will add value. Having a specific person to communicate with, through the channel most convenient to a client, whether that’s email, text, phone, in person, mail or chat boxes, goes a long way towards building that trust.
To capitalize on this thriving market, brokers need to go where the clients are: online. Perhaps more so than any other demographic, gig-economy workers are digital natives or at least extremely comfortable online. They have to be in order to produce income through apps on their smartphone, says Cake & Arrow.
Earning income through apps means these workers expect other experiences to have the same ease: intuitive, simple, fast and requiring as little paper as possible. Brokers must figure out how to provide such an experience, or else already reluctant and confused gig workers may simply opt out of coverage.
Borrowing recommendations from the Cake & Arrow study, brokers interested in gaining these clients should create a well-designed website that explains, in plain language, what coverage is required in each sharing economy sector, what policies exist, why it’s helpful, and how it will and make their life easier and more secure. Micro-targeting each audience segment is time consuming, but worthwhile.
Challenges remain. It is difficult to micro-target when so few products actually do make the life of gig workers easier. Most existing insurance products are too rigid to meet the needs of the inherently inconsistent sharing economy.
One of the best way brokers can help their business is to advocate for product development.
“What insurance companies need to do, is they need to modernize some of their commercial packages,” Alston says. “I think broker channels need to develop more a la carte products.”
Cake & Arrow reports that gig economy workers value flexibility and autonomy, and they seek the same in their insurance. Specifically, they want the option to turn their insurance off and on, pay as they go and adjust their limits and coverage. Micro-insurance for specific items, or liability that covers only a certain time of year would be helpful.
Take the growing segment of freelance workers who work out of their homes. Current policies often cover around $10,000 of equipment, but most of these workers don’t need that much coverage. Instead, they need maybe about $1,500 for their Macbook, and need that coverage to be portable as they work in different locations.
In general, many part-time workers are likely offered more protection than they need with unnecessarily high limits and correspondingly high premiums. Security and privacy products to cover cyber risk are an example. Currently, commercial insurers prefer only to deal with large businesses that pay high premiums because any breach will result in massive losses. But many freelancers and home businesses also need cyber protection for smaller, one-off, sensitive projects that don’t justify high premiums.
If the industry is to adapt to successfully serve gig economy workers, companies will need to gather more data and better assess the risk for these workers. A photographer that does three weddings a year, for example, is in a completely different risk category than one that does a wedding every weekend—but few, if any, options are available for the worker with the lower risk profile.
An additional impediment to progress is that the back-end technology that large insurance companies use is incompatible with the information age. Many of the systems are from the late 1980s and early 1990s. Most are not adaptable to underwrite flexible, niche products.
Commercial insurance companies that must prioritize where to make investments to reach new customers may be fearful that commoditizing their products will be a huge investment without much payoff. How much money is there to be made in high-volume, low-premium transactions? Nevertheless, this segment of the economy is growing. If the industry wants to capture more of it, companies will need to develop products and platforms that reflect the fluid way people live and work today.
Copyright © 2018 Transcontinental Media G.P. This article first appeared in the August edition of Canadian Insurance Top Broker magazine
This story was originally published by Canadian Insurance Top Broker.