Insurer innovation lags the car-use revolution
Motor vehicle owners should consult their insurance brokers before signing up for innovative car-sharing services to ensure that they still enjoy cover. Car-pooling and ride-sharing have been around forever and involve a driver, usually the motor vehicle owner, picking up colleagues or friends to travel to a place of work or other shared destination. But last week we heard about a smartphone application, Cridde, that would allow individuals to add their vehicles to a car rental pool “to earn money by listing and sharing their cars”. Renting your car to an unknown or partially-vetted third party introduces risks that were not anticipated by your motor vehicle insurer and will almost certainly result in claims being rejected.
Rent for reward is excluded
“Many, if not most, comprehensive personal lines insurance policies will cover use of your vehicle by multiple, unnamed drivers; but the unnamed driver will need the owner / primary driver’s permission and have a valid driver’s licence,” says Ernest North, co-founder of AI-driven Insurtech, Naked. He warns that personal lines motor insurance policies explicitly excluded cover for renting out your vehicle for use by others, or using your vehicle to carry passengers for reward or renumeration. Anton Ossip, CEO of Discovery Insure, agrees: “Personal lines motor policies do not generally cover vehicles when they are rented out for reward; this type of use is more typically covered on a commercial policy”.
The risk profile on which insurers base your motor insurance premium changes when strangers are driving your car. “A large part of motor insurance pricing relates to the driver of the vehicle as opposed to the vehicle itself,” says Peter Olyott, CEO at Indwe Broker Holdings. An insurer that does not have access to the claims records of a part-time driver will therefore have to price the cover for the highest potential risk, meaning that you could be paying premiums at the level of a car hire company. Another issue is that rental cars spend more time on the road and rack up more mileage than a vehicle for personal use only. This increases the likelihood of an accident, hi-jacking or theft event.
Think twice before renting out your car
How should non-life insurance broker handle client requests to cover their vehicles for use in a rental pool? “To provide advice for such clients, an adviser would need to understand the differences in risk profile for such vehicles and gain an understanding of how this risk will be mitigated,” says Ossip. Brokers can help their clients by advising them on how to reduce their risk exposures as well as assisting them to place the risk in the market at the most affordable premium.
“You would need to advise you clients that their personal insurance cover will not respond to claims and that a specific commercial policy will be required,” says Olyott. “Once they see the pricing difference as well as the new deductibles and cover exposures, they may think twice about going this route”. It is important that your clients make a full disclosure of their intended vehicle use rather than continuing on the assumption that their existing cover is adequate. “You would have to explain the strict risk management practices enforced by insurers on commercial policies and ensure that your client adheres to them,” says Riyadh Mayet, Senior Manager: Pricing, Analytics & Product at Constantia Insurance.
There are other risk considerations too. “Your clients risk exposure to factors that may negatively impact their personal lives, such as credit scoring and insurance loss histories,” he says. “Liability claims may still fall on the owner of the vehicle, even though they do not know the driver of their vehicles for each trip, as they authorised the driver to use their vehicle via this platform”. Your client’s insurance liability cover may be limited and he or she could thus face shortfalls following a large liability damage claim that stems from the renter of the vehicle.
Evolution of car- and ride-sharing
There are a number of ride-sharing models currently in use. “The traditional ride-sharing concept relates to e-hailing services such as Bolt, Uber and Taxify,” says Mayet. “In these cases the driver either owns the vehicle or is hired by the vehicle owner to provide taxi services to customers obtained via a map-based smartphone application”. Some insurers already provide taxi insurance solutions to cover these vehicles. More recently we have seen a true ride sharing rent-a-car concept for individuals via Turo in the US and SnappCar in Europe. “These concepts introduce open driver exposure to insurers, where the person driving the vehicle comes from beyond the insured household,” he says.
We wondered whether innovators in the domestic motor insurance space were ready for the challenge introduced by new vehicle utilisation trends. “We can use our technology to customise insurance for a changing world; but right now our focus is on personal rather than commercial insurance,” says North. “In terms of adding products or features like cover for gig economy drivers or sharing economy car rentals to our mix, we would want to be sure that there is a viable market opportunity and that it is something that would benefit our wider customer base”.
Usage-based insurance is coming
Discovery Insurer observes that the market will develop innovative solutions to meet the needs of clients as demand for such covers grow. “It is worth remembering that most risks can be insured; but always at the correct premium for the risk taken on,” says Ossip.
Mayet, meanwhile, concludes that “non-traditional pricing methods may be indicated to be competitive in this space, with insurers potentially introducing usage-based insurance or insurance per car-hire ride in addition to some kind of static vehicle risk insurance for when the vehicle is not in use”.
The insurance market is ready to accommodate changes in vehicle use; but may wait for the trend to gather momentum. “The key is offering a seamless, instant experience built on a back-end that can easily be integrated into other partners’ systems,” concludes North. “We already have a back-end system that can be rapidly adjusted to cater for new insurance products and new user needs; and that comes from the fact that we are a digital-first insurance platform that is unencumbered by legacy systems”.
“The motor insurance product is outdated given when it was developed and will need to evolve to cater for this and other types of use-on-demand covers into the future,” concludes Olyott. He mentions the obvious example of where original equipment manufacturers (OEMs) are making vehicles available on an as-and-when basis. This is already happening in Europe. You swipe your card, use the vehicle and drop it off when you are done. In this model the OEM carries the insurance cost.
The driver determines risk
Our recent interactions with insurance stakeholders confirms we are on the cusp of revolutionary changes in the traditional buildings, household contents and motor personal lines insurance policy. Imagine a future where your driver behaviour and insurance history seamlessly attaches to each insurance contract you enter into. If this data is freely available it will be easy for insurers to offer you risk-appropriate damage and liability cover for the few hours or days that you rent a vehicle. A large chunk of damage and liability exposure will shift from the vehicle owner to the driver.
Writer’s thoughts:
Non-life insurance brokers face new risks due to their clients’ changing use of traditional assets such as cars and homes. It is more important than ever to frequently consult with clients to ensure that their non-life insurance portfolio is matched to their unique lifestyle needs. Have you noticed an increase in requests for non-traditional insurance covers to accommodate your client’s use of car, home and other assets? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
