New business models spark innovation in insurance solutions

Digitalisation contributes to increased economic activity and wealth; this can be seen in a significant rise in intangible assets, which remain mostly uninsured. Only 17% of intangibles are insured compared to 58% of tangible assets.

Digital transformation has given rise to new types of business models building on intangible assets, most notably the sharing economy. Transportation firms like Lyft and Uber own no cars, and Airbnb owns no rental units. Nevertheless, they are overtaking traditional players in their respective sectors in terms of growth and market capitalisation. Instead of locking up capital to purchase or make physical assets, they achieve growth by connecting demand and supply. The source of value in these businesses stems mostly form intangible assets like data, trust, brand recognition, scale and network effects.

This sharing economy business models implies a shift of operational risks, and a need for new types of protection coverage in three areas. These are insurance for: 1) the operators of shared economy businesses (eg, host protection for a home-sharing platform); 2) those employed by shared-economy businesses (eg, motor and workers' compensation insurance for rideshare drivers, or liability and accident insurance for on-demand-service freelancers); and 3) the end consumers of the services (eg, guest protection for a home-sharing platform).

These insurance needs are the force behind the development of innovative risk transfer solutions. For example, over time, in the mobility space, shared services will likely increasingly replace private ownership of vehicles. From the insurer perspective, this will necessitate a shift in business mix from personal to commercial lines, as the personal typically exclude cover for commercial usage of vehicles (and homes). Many sharing economy platforms offer insurance to their contractors and customers to avoid unprotected exposures and to build user-trust in the platforms. Some insurers offer specific endorsements for personal lines policies to fill coverage gaps. A variant of these additional covers are usage-based insurance plans that offer commercial cover during the time that a private home is rented, or a car is driven under the name of a ride-sharing company.¹

As the importance of intangible assets in business grows, increasingly firms will need protection against two types of "intangible risk”: the risks that the intangible assets pose (eg, business interruption, cyber); and damage to intangible assets (eg, reputational harm caused by a tweet or computer hack). Additionally, new technologies and business models can be at the core of liability exposures arising from potential violations of tort law or compliance requirements.