How possible is a hybrid insurance model for the sharing economy?

Being able to distinguish between personal and commercial usage is one of the biggest unique differences with underwriting for the sharing economy, but the abundance of data available makes a hybrid insurance model possible, Economical Insurance said recently.

“You can use that data to easily de-mark what is commercial and what is personal, but that level of data also gives you the ability to move towards very much a usage-based type of underwriting model,” said Obaid Rahman, vice president of commercial underwriting and specialty lines at Economical. “That gives you the perfect match between pricing for the right amount of exposure, and it also works from the customer side of things: You only pay for the actual exposure you are incurring. It makes their model economically viable.”

Rahman was responding to a question about some of the challenges in underwriting ridesharing insurance and how they are overcome. He spoke with Canadian Underwriter Thursday about Economical’s new relationship with Uber in Canada, designed to provide insurance coverage for Uber Rides and delivery of goods service Uber Eats in four provinces.

Last week, Economical announced it will be replacing Intact Insurance as the commercial auto insurer for Uber in Alberta, Ontario, Quebec and Nova Scotia, effective Sept. 1 (in Nova Scotia, coverage is only for Uber Eats as Uber Rides doesn’t operate in the province). Intact Insurance and belairdirect will continue to allow customers with a personal auto policy to participate in ridesharing, an Intact spokesperson said Friday.

Obaid Rahman, VP of commercial underwriting and specialty lines at Economical Insurance. Photo courtesy of Economical.

“It’s been a really exciting time to work on something like this and bring a leading brand — pretty prominent — over to Economical,” Rahman said.

Economical said that insurance coverage for drivers operating on the Uber platform will continue seamlessly, and there will be no coverage gaps between personal and commercial auto coverage.

One of the unique differences with insurance for the sharing economy “is you are primarily talking about people having personal assets which they are now utilizing for commercial use, but they are not [always] utilizing them full-time,” Rahman said. “Most of the traditional insurance products are all-or-nothing: You’re commercial or you’re personal.”

So, this makes it difficult for ridesharing to follow a traditional insurance model, assuming the person is doing this full-time, when they could be ridesharing two hours a week or 20 hours a week. “It comes down to how do you match the exposure to the usage. That’s the biggest underwriting question.

“A usage-based concept works well in these situations,” Rahman said. “One of the driving forces for it is it’s very tech-based and there is enough data available that allows you to provide such a model.”

Related: Economical to take over commercial ridesharing insurance coverage from Intact

Economical’s coverage is broken up into phases, or periods:

• Period 0 is when a vehicle is being used for personal use and there is no coverage on the commercial policy
• Period 1 is when the driver is available to pick up a passenger or goods and turns on the app to make themselves available on the transportation network
• Period 2 is when a driver accepts a commercial transaction (a passenger or en route to pick up goods)
• Period 3 is actually transporting the passenger or goods to the eventual destination (periods 2 and 3 are interconnected).

So, what is considered personal versus commercial? “I would say it’s very absolute,” Rahman said. For example, in Period 0, the app is not turned on and there is no possibility of the driver receiving requests for rides or deliveries. In Periods 2 and 3, there is no debate the vehicle is being used for commercial use.

But there are nuances. In Ontario, Quebec and Nova Scotia, there is coverage under the commercial policy while the driver is in Period 1 (although there are some nuances on the physical damage coverage for both Period 1 and future periods). In Alberta, coverage for Period 1 is contingent: “You first have to be denied by the personal lines insurer,” Rahman said. “If they deny the claim, you can go to this commercial coverage as a back-up.

“Back when ridesharing was coming and these policies were being designed, they were designed with a lot of thought given to that there would be no coverage gap,” Rahman said.

Feature image via iStock.com/martin-dm