A profitable gig for insurtech?

There has been no shortage of attempts to quantify the gig economy – the labour market that provides professional services via short-term contracts or freelance work.

For example, the Chartered Institute of Personnel and Development (CIPD) estimates that approximately 1.3 million people across the UK are involved in ‘gig work’.

Nevertheless, statistical analysis is complicated by a blurring of boundaries with the ‘sharing’ economy – which involves the leasing and lending of privately owned assets.

A sharing economy player like Airbnb, for example, is arguably also part of the gig economy because some homeowners take a very professional attitude towards renting out their rooms.

What is beyond doubt, however, is that the gig economy is set to continue to grow strongly, and this is seeing insurtech start-ups sensing opportunities to offer specialist insurance cover.

Accessible and flexible cover

Established insurers are used to providing a single big-ticket policy but most workers in the gig economy are effectively self-employed and don’t necessarily work full-time.

Zego reports that the average hours worked per day by its customers are 4.5 for those with car cover and 6.5 for those with scooter cover.

Those who work irregular and unpredictable hours may wish to turn their policy on and off several times a day, and insurtech start-ups are seeking to fill this niche with easily-accessible and specifically tailored services and systems.

Established insurers can find it prohibitively expensive to adapt their existing cover formats and systems for a market that requires low transaction costs and a stream of data to price higher-risk customers who aren’t just performing predictable activities at their desks.

Indeed, research by global data-intelligence and innovation company Tällt Ventures finds that 55% of established insurers are not yet taking any steps to embrace the gig economy and that 35% are at pilot stage.

Matt Connolly, founder and chief executive of Tällt Ventures, says: “Some big corporates are not flexible enough to embrace the opportunity as they are too risk averse.

“Brand does come into play but, if insurtechs are offering a good design and service that meets the right needs and are providing the right platform, people don’t really mind if they are dealing with a big insurer or a start-up.”

Partnerships and mergers and acquisitions

The bigger insurers do, however, have some involvement via partnership arrangements. It usually makes sense for insurtechs to partner with one or more established player to avoid the huge amount of time and cost involved with gaining authorisation to underwrite and to access scale to overcome distribution hurdles.

It is possible that some insurtech start-ups will eventually seek to break free from their partnership agreements and become more mainstream insurers in their own right. Indeed, Bikmo volunteers that it may convert itself to a managing general agent (MGA).

But, whilst such a scenario may encourage established players to sharpen up their act, it is unlikely to threaten them with a death knell.

“We may see a handful of insurtechs go mainstream and take significant market share, and this will exert pressure on insurers to improve their offering and ensure they remain relevant” continues Connolly. “It could lead to merger and acquisition activities.

“Most insurers have been focusing on cost reduction and other sustainable innovation rather than on disruptive innovation. But now they are starting to consider more disruptive things, which would include owning their own insurtech operations.”

But some experts feel that it could be the gig economy firms rather than the insurers who do the acquiring.

Greg Brown, partner at insurtech advisers Oxbow Partners, says: “The other digital giants like Amazon are increasingly looking at insurance for their core business, so it could make sense for some of the major gig economy players to follow suit.”

Still in infancy

Either way, current gig economy insurtechs hardly offer an abundance of low-hanging fruit for potential acquirers. The field is still very much at an embryonic stage.

The number of identifiable insurtech start-ups that target or utilise the UK gig economy can currently be counted on the fingers of one hand and, although Zego – the most established of these – refers to in excess of 8,000 customers, this is still pretty small fry.

Whilst bespoke covers for the gig economy may sound attractive in theory, the extent to which they will be valued in practice remains unclear.

Matt Cullen, head of strategy, data & analytics at the ABI, says: “What I don’t hear is a massive clamour for workers in the gig economy to have insurance solutions specifically for them. So we are not sure what the potential demand is.

“There will be demand, I’m sure, but a lot of the needs of the gig economy can be met through the standard market even if this is not necessarily in the most optimal way. If, for example, a delivery driver is only driving two hours a day but having to buy a full commercial insurance policy that would not be optimal but it could still be considered OK.”

Furthermore, not everyone agrees that insurtechs are able to offer a vastly superior proposition by virtue of being start-ups.

Jamie Macgregor, senior vice-president for the insurance practice at technology research and consultancy firm Celent, says: “As a start-up, other than simply being better at customer experience, more agile, and digital from the start, I personally don’t believe there is much of an advantage compared to an incumbent for the insurance coverage element.

“The capital and regulatory barriers remain large, and there is little value in purely being a nice digital front-end. We’re already seeing established insurance providers working closely with new digital platforms to do this directly without start-ups by using their in-house digital and innovation teams.”

Insurtech start-ups for the gig economy have not caused and are unlikely to cause a revolution in the insurance industry, and they are more about partnerships than competition. However, anything that nudges existing players to evolve their existing propositions is surely to be welcomed.