The Gig is Up: Group and Commercial Insurers Can Rock the New Economy

Commercial insurers have every reason to be optimistic. Thanks to the Gig economy and the Sharing economy, business launches are on the rise. And even though not every business launch is the next Fortune 500 company, insurers that are poised to take advantage of volume may find themselves with impressive market share. In this first blog of a two-blog series, we will look at the Gig economy and the implications for Commercial insurers.

Here are five quick reasons that Commercial insurers in every line of insurance can be excited.

1. Demographics are pointing to short-term and long-term growth trends because growth fuel will be coming from two separate sets of entrepreneurs with separate timelines for business maturity.
2. Technology is supporting new business acquisition channels that were not feasible before. Commercial insurers, in many cases, can look at current direct-to-consumer trends for real insights. Improved data use will provide better custom-fit insurance solutions for SMBs.
3. Product development opportunities for commercial insurers are growing out of Gig-related business trends, lifestyle and purchase trends.
4. Modern affinity groups will become more prevalent and important the more that people pursue Gig-type employment. Insurers that traditionally offer voluntary benefits through employers will find that thousands of new types of business groups will become interested in traditional and non-traditional products.
5. More sharing, less disruption. As the sharing economy grows (and with it, a new type of commercial product need) commercial insurers will also be the beneficiaries of fewer negative disruptive trends, such as vehicle autonomy.

The further we dig into the Gig economy, the more we find that small efforts by commercial and specialty insurers could yield big results. If an insurer is looking to build a case for preparation, some of the following points may be excellent support.

Gig workers, Millennial entrepreneurs and Senior entrepreneurs.

Demographics are painting a clear picture of the new economy from the ground-level. As we pointed out in our report, Future Trends 2017: The Shift Gains Momentum, project-based work and new businesses are on the rise.

The emergence of the “Gig” or “On Demand Economy” is made up of individuals who work as freelancers, independent contractors for themselves or independent contractors for on-demand service providers. The Gig economy has increased the number of small businesses. The 2016 version of Upwork and the Freelancers Union’s annual survey, Freelancing in America, estimated that 55 million people, or 35% of the U.S. workforce, have chosen freelancing as their means of work.[i]

While freelancer and independent contractor work arrangements are not new, the relatively recent trend of on-demand workers, where workers and clients are typically connected through a digital platform, have caused state regulators and insurance companies to wrestle with questions of worker safety, liability and employee benefits. A growing list of insurers are providing products for the fluid dual coverage needs of people working through ride-hailing services like Uber and Lyft, home-sharing services like Airbnb or providing unique coverage needs of workers and companies engaging in contract-driven work.

Many of these independent jobs transition into larger businesses and insurers can find relevant business launch trends among two separate groups — aging Millennials and retiring Boomers.

The Kauffmann Foundation’s statistics on entrepreneurship indicate that the “peak age” for starting a business in the US is around 40. Millennials are on the cusp of mass entry into the “peak age” bracket for entrepreneurship. They show a strong desire to start businesses. By 2020, more than 60% of small businesses in the US will be owned by Millennials and Gen Xers.

Baby Boomers are reaching retirement age in ever greater numbers. As they move to retirement, some will seek “gig economy” businesses and jobs to supplement their income. Many will start their own businesses. For those who already own their businesses, they will potentially pass them to the next generation. For those starting a business, this represents a growing new segment.

In either case, the trends will cause growth in the need for commercial insurance. For more information on how demographics is shedding light on growth opportunities, read A New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance in a Time of Market Disruption.

Technology choices will enable greater access to small businesses.

Traditionally, commercial insurance was sold and serviced by agents and brokers. Smaller businesses were often under-served because they simply difficult or expensive to reach. For the underwriter, they were also a bit cumbersome. Was it worth the time spent in research to underwrite the business? With small businesses, cookie-cutter products were an effective solution. But today’s small businesses are too varied for effective low-volume underwriting.

Digital sales and service will effectively fill a void for Millennial and Gen X business owners, who prefer that kind of service for most every other transaction. Our research, The Rise of the New Insurance Customer, showed that all generations use multiple methods to research insurance prior to buying or renewal, but Gen X, Millennials and Gen Z use the widest variety of options, including digital channels like e-mail, texting/messaging/chatting and social media.

Similar to personal lines, commercial lines has historically relied on macro segments for classification and pricing purposes. With the advent of more data sources and sophisticated analytics, commercial lines has developed unique new segments for insurance like professional liability for specific businesses, all-terrain vehicles, yachts and pleasure boats, wineries, country clubs and numerous others.

In many cases, the business sales and service model for Gig individuals and SMBs will be patterned off of modern direct to consumer models. Some insurers have already been capitalizing on the similarities. Berkshire Hathaway, Hiscox and Homesite are all examples of successful small business coverage direct writers that have found a formula that works.[ii]

Group purchasing and Commercial and Specialty product development

The Gig economy is naturally isolating individuals who used to be covered under employers for both standard health, life and other core employee benefits and voluntary benefits. Those who leave their jobs for Gig-type employment, will often take portable benefits with them, transitioned into individual coverage. They will be assuming a larger load of their core benefit costs or going uncovered. This will create a natural pooling. New potential “affinity” groups will arise with insurance opportunities for both Group carriers and Commercial insurers.

Their work habits and preferences will also create new needs. For example, there is growth in demand for temporary workspaces, temporary storage spaces and occasional use of vehicles and equipment.[iii] Commercial insurers will be filling the insurance gaps for these types of policies. In many cases, the lines between insurance types may begin to get fuzzy as commercial insurers create risk products that go beyond personal lines, but that still contain some of their attributes.[iv]

As some personal line business is lost due to vehicle autonomy and manufacturer liability (such as Volvo) or sharing liability (such as ZipCar and Maven), commercial insurers will be on the flip side of receiving additional pooled business. Many commercial insurers, already adept at handling fleet dynamics and logistics liabilities, will be extremely comfortable shifting gears and accepting other types of pooled risk.

If commercial insurers are truly interested in expanding into Gig-created space, they should prepare their systems to handle not just large groupings of risk, but individualized data contained within the risk pool. They should also keep tabs on mobile and InsurTech developments, keeping their eyes on apps that cater to group sharing of any type of resources. Mobile apps may open commercial doors to unique product development. For example, an insurer may find that only one app is traditionally used by commuting cyclists or bike couriers. One unique product offering may help that insurer corner the market on a nationwide community.

In our second blog, we will look specifically at how insurance is part of the fuel that will push the Sharing economy forward. We will examine what specialty and commercial insurers have to gain by positioning themselves with technology to handle on-demand products. And we will look at how telematics may contribute to lowering risks for companies that offer shared services.

[i] “Freelancing in America 2016,” Upwork / Freelancers Union

[ii] Garth, Denise, New Era of Commercial Insurance, Insurance Thought Leadership, June 30, 2017

[iii] Wallenstein, Judith and Shelat, Urvesh, Hopping Aboard the Sharing Economy, BCG Publications, August 22, 2017

[iv] Deloitte, Turbulence ahead: The future of general insurance, 2016