As the sharing economy emerges as a potential growth driver for the insurance industry, Lloyd’s, the world’s largest market for insurance for ships, planes and motor vehicles, is highlighting various insurance risks in the industry, including “the insurance that is being taken into account, the insurance that is in a standard form, or the insurance that is offered in a form that has no standard form,” said Adam Hildreth, Lloyd’s group underwriter for air, marine and other.
The sharing economy was discussed during a panel discussion held in London on Thursday, following the publication of a Lloyd’s report last week that explains the difference between the traditional and new forms of insurance.
The insurance used by the sharing economy companies typically requires some form of alternative, contingent or non-standard form of indemnity that is often not a standard form of insurance that is offered to other clients, according to the panel.
Unlike traditional forms of insurance, new forms of insurance often have different measures of loss, and are likely to have additional factors and factors for workers who are not normally covered by traditional forms of insurance, including items of clothing, household items and toys that are potentially damaged by wear and tear.
Lloyd’s representatives said companies that process this data, such as Uber and Airbnb, will need insurance to protect themselves, as well as those passengers, drivers, hosts and more — some of whom will not normally have insurance.
Other risks highlighted in the report included “the lack of underlying structural and societal change around insurance and reinsurance,” due to a legacy of low investment returns that has been largely controlled by central banks.
This low-investment capital, which is limited, has meant that returns have been dwindling, Lloyd’s representatives said. But the demand for reinsurance has also increased due to underwriting capacity of $185 billion, up from $75 billion in 2011.
A graph from Lloyd’s presentation on the sharing economy and insurance cover shows the changes in reinsurance demand from 2005 to 2012.
The shrinking premium revenues from investment income and the rising demand for reinsurance led to reinsurance companies raising premiums in 2012, Lloyd’s representatives said. In addition, the structure of how reinsurance premiums are calculated has also changed as actuaries and underwriters are beginning to recognize risks more effectively, they said.
Insurance companies are also facing a high cost of the insurance of large-volume risks, including the rise in the cost of claims caused by natural disasters and terrorism and the variable risk of cyber security breaches.
The growth of the sharing economy has also affected other forms of insurance, such as the increasing use of instant insurance that clients no longer have to wait for, as well as increasing instances of small claims in general insurance, they said.
Andrea Miteski, PhD and MD in the field of reinsurance. Long term senior insurance executive with specialization of reinsurance optimization.