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How the sharing- and gig-economy industry should approach risk

Cyber Risk Management|Financial, Executive and Professional Risks (FINEX)|Future of Work
COVID 19 Coronavirus

By Joseph Hurley | May 18, 2020

Growing rapidly while adjusting to a volatile environment, leading-edge businesses should approach risk management as a strategic opportunity.

As a former risk manager for a leading ride-sharing service, I’m familiar with the sharing or “gig” economy and its business model. There is a lot to admire about an industry that is brimming with creativity and its take-no-prisoners approach to growth. Though many entrepreneurs can turn a bright idea into a successful, market-rattling gig business, they can be surprisingly short-sighted when it comes to risk management.

Insurance is not a check-the-box exercise

In my current position at Willis Towers Watson, I have now seen sharing- and gig-economy risk management from both sides of the fence. In my work with companies in this space, I often find that risk management can be something of afterthought; perhaps something that is done merely to meet regulatory requirements.

Some start-up companies may view risk management as the obligatory purchase of insurance policies. Insurance is not seen as vital and, worse, perceived as draining cash that could be better used to grow the business. In the absence of a loss, there is little understanding of an insurance policy’s true financial value.

Risk management, though, can be an opportunity for competitive advantage, especially when companies in this space are growing rapidly and constantly adjusting to meet a volatile business environment.

What good gig risk management looks like

Based on my experience, here are five key recommendations for risk management in the sharing and gig economy:

  1. Invest in a risk and insurance professional. On the most rudimentary level, it is important to have a risk manager who understands insurance – what it covers, what it doesn’t – as well as how their specific business model is priced and the various levers that can be pulled for effective risk management.

    In addition, it’s beneficial to have one voice internally who advocates and works with various internal stakeholders to ensure the business understands company risks and related challenges from an insurance perspective. Having a risk manager also demonstrates to insurers that your company takes risk management seriously.

  2. Break down organizational silos. Having a risk manager who “owns” risk and can bring colleagues from trust and safety, operations, technology, legal, compliance, finance and government relations into risk discussions helps ensure effective risk management across the organization. These colleagues can alert the risk manager to exposures that otherwise could lead to uninsured losses. (You can’t insure for something that you don’t know.)

    In addition, having a risk professional is also critical to a more strategic, enterprise-wide view of risk, which can provide competitive advantage.

  3. Partner with the right insurance advisor and broker. At a minimum, your trusted advisor should know your business model as well as or better than your risk professional. They should have strong relationships with many of the key insurers, and they need to be proactive in terms of developing and working with companies on risk solutions that are tailored specifically to your needs and wants. In short, they should be an extension of your company, nimble enough to adapt and grow in a fast-paced environment.

    A knowledgeable advisor/broker is particularly helpful if you choose not to have a dedicated risk manager or internal risk management function.

  4. Data is power. As a technology company, you are the mecca for data. There is a misconception that sharing too much data with insurers will hurt as opposed to help you. It’s important that you question all data requests to understand why the insurance community needs the data. From these learnings, you can begin to strategize on effective data sharing with the goal of tailoring specific insurance products that fit your business model plus potentially achieving cheaper insurance costs as a result.

  5. Know the regulatory environment. Don’t let this be overlooked! Become an expert in terms of regulatory challenges or pitfalls that could impact your business model. Such challenges can include onerous insurance requirements, unfavorable indemnity provisions at the local municipality level (if applicable), independent contractor versus employee (such as California’s proposed AB5 regulations), data sharing, and so on.

    Many of these areas could radically change a company’s risk profile, so it’s important to have an understanding of their potential impact. In addition, it’s helpful to build effective working relationships with local regulators across the geographies that you operate in.

Insurers are finding their way

To add to the industry’s complex risk management dynamics, the insurance industry is still finding its way in terms of evaluating and getting comfortable with how sharing- and gig-economy companies operate. Insurers rely heavily on historical claims data. Sharing and gig companies, especially those in the start-up phase, have no meaningful claims data history and, as a result, can’t provide specific loss experience for insurers to evaluate.

In addition, these companies are routinely creating new exposures as their business models change and adapt based on the competitive landscape or unforeseen outside forces like COVID-19. This fast-paced operation mentality and entry into new risks can be worrisome for insurers.

However, notwithstanding the above, we are starting to see the sharing and gig economy become more of a focus for major insurers as they recognize the shift in our society to on-demand platforms. They are investing resources to develop products that allow flexibility (e.g., plug-and-play) and can be utilized to readily confront new risks.

Some insurers also have developed a corporate culture that breaks the traditional conservative insurance mindset and challenges their underwriting community to become more informed and develop an expertise for how this industry operates. For example, Apollo Syndicate Management, a specialist insurer and reinsurer, formed a Lloyd’s syndicate, ibott, to underwrite coverage specifically focused on start-ups and innovators in the sharing and gig economy. I expect more insurers over time to have a similar, dedicated focus.

I’m convinced that sharing and gig companies will take on a growing economic role while continuously reshaping themselves to meet competitive challenges, rapid technological change, growing regulatory interest and such black swan events as COVID-19. Each of these factors can significantly alter your risk profile and threaten your company’s financial performance and growth potential. Risk management has a powerful role to play, and you need to get it right.


Corporate Risk and Broking Leader – Sharing and Gig Economy

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