2016 NCCIA Annual Meeting
2016 NCCIA Annual Meeting I n suring t h e S h ared E c onomy
Robert Walling Monica Everett August 22, 2016
About the Presenters Robert J. Walling III, FCAS, MAAA, CERA Principal and Consulting Actuary Bloomington, Ill. Pinnacle Actuarial Resources, Inc. Monica Everett, CRIS Regional Director San Diego, Ca. Artex Risk Solutions, Inc.
2
Outline of Presentation • What is the sharing economy?
• Insurance needs in the sharing economy • Opportunities and challenges • Approaches to pricing • Questions
3
What is the Sharing Economy? Wikipedia definition: The sharing economy is a hybrid market model (in between owning and gift giving) which refers to peerto-peer-based sharing of access to goods and services (coordinated through community-based online services.)
Source:https://en.wikipedia.org/wiki/Sharing_economy
4
Companies in the Sharing Economy Transportation
Space
Money
Goods
Services
5
How Big is the Sharing Economy? • Airbnb had 155M stays in 2014 – Hilton worldwide had 127M nightly stays in same period
• At a $68B valuation in Q4 2015, Uber surpasses GM and Ford • The Billion Dollar Club continues to grow – Number of companies with billion dollar valuations increased by 10 in 2015, a 71% increase
• Revenue could reach $335B by 2025
Source: PwC; Forbes; Venture Beat
6
Who Uses the Sharing Economy? • 44% of U.S. consumers are familiar with the sharing economy • Only 19% of total U.S. population has participated in the sharing economy • Of those who are familiar, most… ̶ believe it makes life more affordable ̶ agree it’s better for the environment ̶ feel it is less expensive to share goods than to own them
• But most… ̶ feel the sharing economy experience is not consistent ̶ won’t trust sharing economy companies until they are recommended by someone they trust
Source: PwC survey of 1,000 adults in the U.S., conducted online, December 2014
7
How many sharing economy firms (e.g. Uber, Lyft, Airbnb, Etsy, Angie’s List, Ebay, etc.) have you used? A
0
B
1
C
2
D
3+
Polling Question #1
8
Have you ever recommended a sharing economy firm to someone else? A
Yes
B
No
Polling Question #2
9
Who’s Actually Providing the Services? • Why are people choosing the on-demand economy? -
Flexibility Freedom Augment regular income Underemployment
• Dominated by incomes below $50k • 43% are under 50k
14% Age 18 to 24
24%
Age 25 to 34
Age 35 to 44 Age 45 to 54 Over 55
24% 14%
24%
Less than $25K 25k to 49k 50k to 74k 75k to 99k 100k to 149k 150k to 199k Over 200k
11% 3%
19%
11%
24%
16% 16%
Source: PwC survey of 1,000 adults in the U.S., conducted online, December 2014
10
On-Demand Workforce, a Free Agent Model? • Significant competition among platforms ̶ Introductory promo offers for new drivers ̶ Both Lyft and Uber have offered special promotions for new drivers from competing platforms
• A 2014 survey showed 65% of on-demand workers earn from more than 2 platforms ̶ No restrictions on independent contractors from working for multiple platforms
Source: Sherpashare survey conducted online 150 respondents, August 2014
11
Coverages for Sharing Economy Companies/Workers • Workers’ Compensation – employees and/or independent contractors • Accidental death & dismemberment • Short term disability • Limited medical benefits??? • General liability – based upon the operations • Cyber – privacy, financial data, customer data • Employment practices liability – employees and/or independent contractors • Auto liability – owned, non-owned, sharing, both personal and commercial use, including livery • Professional liability – e.g. home health care
12
What coverages are most important to the sharing economy?
A
Workers’ compensation
B
Health benefits (medical, dental, etc.)
C
Accidental death & dismemberment (AD&D), disability, etc.
D
General liability
E
Cyber liability
F
Employment practices
G
Other
Polling Question #3
13
Challenges • Should independent contractors be considered employees and covered under workers’ compensation? ̶ Rulings on this matter are expected to occur mid-summer 2016
• Many independent contractors work for multiple sharing economy companies in the same day • Employee and independent contractor safety is a concern when delivering to certain areas • Autos may be used for personal use in the a.m. And livery in the p.m. • Financial profitability • Turnover of independent contractors
14
Should participants in the sharing economy be viewed as employees (part time?) or independent contractors?
A
Employees
B
Independent contractors
C
It depends on the specific circumstances
D
I have no idea
Polling Question #4
15
Insurance Market Concerns • Financial stability and profitability of the company – many are reliant upon funding from investors • Employees and independent contractors should be covered • Cost for independent contractors can be multiples of employee payroll • Employee and independent contractor safety – how do you quantify the risk and exposure? • Auto exposures – who are they driving for at the time of the accident and how do you quantify the risk and exposure? • Years in business • Lack of historical data
16
Opportunities • Technology – many sharing economy platforms and independent contractors are quite tech savvy • Membership/Community – may lead to easier marketing of association/MGA type programs • Risk Savvy – the entrepreneurial nature of most sharing economy platforms makes these business owners natural candidates for captives • Marketing Tool – the ability to offer insurance coverages may be a tool to attract the better independent contractors in a competitive sharing economy • Cultural Shifts – aging population needs help, more people don’t want to pay full price for anything and are tech savvy enough to find the best price
17
Challenges for the Pricing Actuary • Coverage ̶ Covered activities are harder to define and assess ̶ From which coverage form do you even start? (e.g. for Uber, do you use PAL or CAL? Gap coverage only or all losses?) ̶ International exposure? (e.g. Uber will drive to Mexico, not pick up)
• Control – Independent contractors are harder to risk control • Moral Hazard – is there an incentive for the independent contractor to be careful? (e.g. Uber driver with reduced fares) • Morale Hazard – how is this going to be addressed? • Adverse Selection – will only the people that need the coverage buy it? (e.g. Medical Benefits, AD&D, disability) • Comorbidities – is the population biased in any way? (e.g. Worse health risks?) 18
Challenges for the Pricing Actuary – Experience Rating • Limited experience data often makes experience rating impossible • Can experience from non-insurance resources be leveraged? ̶ e.g. Property damage in transit coverage, disability rates
• Can a frequency/severity model be constructed?
19
Challenges for the Pricing Actuary–Exposure Rating • Exposures ̶ Is a dollar of payroll or revenue or a mile drive the same amount of risk for a member of the sharing economy as the traditional economy? ̶ Transience may muddy how well the historical exposures predict the future exposures (akin to PEOs/staffing) ̶ Moral & morale hazard increased? ̶ What is the true exposure (e.g. a clothing maker on Etsy or ModCloth)? • Benchmarks–Which industry benchmarks are good starting points? ̶ How does Uber experience relate to taxis, limos, gray cars??? ̶ How does Grub Hub compare to Dominos? ̶ How does Airbnb relate to apartments, hotels, etc. ̶ Some specialty programs exist that may make good comparables 20
A Market-Comparable Approach • Use an industry benchmark with reasonable adjustments for underlying exposures • Captive expenses tend to be much lower than admitted carriers • A risk/contingency margin is imperative for emerging markets and coverages • This will tend to offset the reduced expense provision and result in premiums for the captive that are still competitive • HOWEVER – If the coverage cannot not be direct issued, finding a fronting carrier willing to take the risk with you may still be a material challenge
21
Challenges for the Reserving Actuary • See Pricing Actuary slides • Exposure – how does frequency per exposure compare to experience for traditional companies? (monitor closely) • Control – are reporting lags longer? • Control – are claims being reported with hard to verify circumstances? • Benchmarks – which loss development benchmarks are appropriate?
22
Thank You for Your Attention
Robert J. Walling III, FCAS, MAAA, CERA 309.807.2320 [email protected]
Monica Everett 858.922.9886 [email protected]
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Robert Walling Monica Everett August 22, 2016
About the Presenters Robert J. Walling III, FCAS, MAAA, CERA Principal and Consulting Actuary Bloomington, Ill. Pinnacle Actuarial Resources, Inc. Monica Everett, CRIS Regional Director San Diego, Ca. Artex Risk Solutions, Inc.
2
Outline of Presentation • What is the sharing economy?
• Insurance needs in the sharing economy • Opportunities and challenges • Approaches to pricing • Questions
3
What is the Sharing Economy? Wikipedia definition: The sharing economy is a hybrid market model (in between owning and gift giving) which refers to peerto-peer-based sharing of access to goods and services (coordinated through community-based online services.)
Source:https://en.wikipedia.org/wiki/Sharing_economy
4
Companies in the Sharing Economy Transportation
Space
Money
Goods
Services
5
How Big is the Sharing Economy? • Airbnb had 155M stays in 2014 – Hilton worldwide had 127M nightly stays in same period
• At a $68B valuation in Q4 2015, Uber surpasses GM and Ford • The Billion Dollar Club continues to grow – Number of companies with billion dollar valuations increased by 10 in 2015, a 71% increase
• Revenue could reach $335B by 2025
Source: PwC; Forbes; Venture Beat
6
Who Uses the Sharing Economy? • 44% of U.S. consumers are familiar with the sharing economy • Only 19% of total U.S. population has participated in the sharing economy • Of those who are familiar, most… ̶ believe it makes life more affordable ̶ agree it’s better for the environment ̶ feel it is less expensive to share goods than to own them
• But most… ̶ feel the sharing economy experience is not consistent ̶ won’t trust sharing economy companies until they are recommended by someone they trust
Source: PwC survey of 1,000 adults in the U.S., conducted online, December 2014
7
How many sharing economy firms (e.g. Uber, Lyft, Airbnb, Etsy, Angie’s List, Ebay, etc.) have you used? A
0
B
1
C
2
D
3+
Polling Question #1
8
Have you ever recommended a sharing economy firm to someone else? A
Yes
B
No
Polling Question #2
9
Who’s Actually Providing the Services? • Why are people choosing the on-demand economy? -
Flexibility Freedom Augment regular income Underemployment
• Dominated by incomes below $50k • 43% are under 50k
14% Age 18 to 24
24%
Age 25 to 34
Age 35 to 44 Age 45 to 54 Over 55
24% 14%
24%
Less than $25K 25k to 49k 50k to 74k 75k to 99k 100k to 149k 150k to 199k Over 200k
11% 3%
19%
11%
24%
16% 16%
Source: PwC survey of 1,000 adults in the U.S., conducted online, December 2014
10
On-Demand Workforce, a Free Agent Model? • Significant competition among platforms ̶ Introductory promo offers for new drivers ̶ Both Lyft and Uber have offered special promotions for new drivers from competing platforms
• A 2014 survey showed 65% of on-demand workers earn from more than 2 platforms ̶ No restrictions on independent contractors from working for multiple platforms
Source: Sherpashare survey conducted online 150 respondents, August 2014
11
Coverages for Sharing Economy Companies/Workers • Workers’ Compensation – employees and/or independent contractors • Accidental death & dismemberment • Short term disability • Limited medical benefits??? • General liability – based upon the operations • Cyber – privacy, financial data, customer data • Employment practices liability – employees and/or independent contractors • Auto liability – owned, non-owned, sharing, both personal and commercial use, including livery • Professional liability – e.g. home health care
12
What coverages are most important to the sharing economy?
A
Workers’ compensation
B
Health benefits (medical, dental, etc.)
C
Accidental death & dismemberment (AD&D), disability, etc.
D
General liability
E
Cyber liability
F
Employment practices
G
Other
Polling Question #3
13
Challenges • Should independent contractors be considered employees and covered under workers’ compensation? ̶ Rulings on this matter are expected to occur mid-summer 2016
• Many independent contractors work for multiple sharing economy companies in the same day • Employee and independent contractor safety is a concern when delivering to certain areas • Autos may be used for personal use in the a.m. And livery in the p.m. • Financial profitability • Turnover of independent contractors
14
Should participants in the sharing economy be viewed as employees (part time?) or independent contractors?
A
Employees
B
Independent contractors
C
It depends on the specific circumstances
D
I have no idea
Polling Question #4
15
Insurance Market Concerns • Financial stability and profitability of the company – many are reliant upon funding from investors • Employees and independent contractors should be covered • Cost for independent contractors can be multiples of employee payroll • Employee and independent contractor safety – how do you quantify the risk and exposure? • Auto exposures – who are they driving for at the time of the accident and how do you quantify the risk and exposure? • Years in business • Lack of historical data
16
Opportunities • Technology – many sharing economy platforms and independent contractors are quite tech savvy • Membership/Community – may lead to easier marketing of association/MGA type programs • Risk Savvy – the entrepreneurial nature of most sharing economy platforms makes these business owners natural candidates for captives • Marketing Tool – the ability to offer insurance coverages may be a tool to attract the better independent contractors in a competitive sharing economy • Cultural Shifts – aging population needs help, more people don’t want to pay full price for anything and are tech savvy enough to find the best price
17
Challenges for the Pricing Actuary • Coverage ̶ Covered activities are harder to define and assess ̶ From which coverage form do you even start? (e.g. for Uber, do you use PAL or CAL? Gap coverage only or all losses?) ̶ International exposure? (e.g. Uber will drive to Mexico, not pick up)
• Control – Independent contractors are harder to risk control • Moral Hazard – is there an incentive for the independent contractor to be careful? (e.g. Uber driver with reduced fares) • Morale Hazard – how is this going to be addressed? • Adverse Selection – will only the people that need the coverage buy it? (e.g. Medical Benefits, AD&D, disability) • Comorbidities – is the population biased in any way? (e.g. Worse health risks?) 18
Challenges for the Pricing Actuary – Experience Rating • Limited experience data often makes experience rating impossible • Can experience from non-insurance resources be leveraged? ̶ e.g. Property damage in transit coverage, disability rates
• Can a frequency/severity model be constructed?
19
Challenges for the Pricing Actuary–Exposure Rating • Exposures ̶ Is a dollar of payroll or revenue or a mile drive the same amount of risk for a member of the sharing economy as the traditional economy? ̶ Transience may muddy how well the historical exposures predict the future exposures (akin to PEOs/staffing) ̶ Moral & morale hazard increased? ̶ What is the true exposure (e.g. a clothing maker on Etsy or ModCloth)? • Benchmarks–Which industry benchmarks are good starting points? ̶ How does Uber experience relate to taxis, limos, gray cars??? ̶ How does Grub Hub compare to Dominos? ̶ How does Airbnb relate to apartments, hotels, etc. ̶ Some specialty programs exist that may make good comparables 20
A Market-Comparable Approach • Use an industry benchmark with reasonable adjustments for underlying exposures • Captive expenses tend to be much lower than admitted carriers • A risk/contingency margin is imperative for emerging markets and coverages • This will tend to offset the reduced expense provision and result in premiums for the captive that are still competitive • HOWEVER – If the coverage cannot not be direct issued, finding a fronting carrier willing to take the risk with you may still be a material challenge
21
Challenges for the Reserving Actuary • See Pricing Actuary slides • Exposure – how does frequency per exposure compare to experience for traditional companies? (monitor closely) • Control – are reporting lags longer? • Control – are claims being reported with hard to verify circumstances? • Benchmarks – which loss development benchmarks are appropriate?
22
Thank You for Your Attention
Robert J. Walling III, FCAS, MAAA, CERA 309.807.2320 [email protected]
Monica Everett 858.922.9886 [email protected]
23
