Sharing Economy Implications for the Insurance Industry in Canada
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Sharing Economy Implications for the Insurance Industry in Canada EMERGING ISSUES RESEARCH SERIES About the Insurance Institute The Insurance Institute is the premier source of professional education and career development for the country’s property and casualty insurance industry. Established in 1899, the Institute is a not-for-profit organization serving more than 39,000 members across Canada through 19 volunteer-driven provincial Institutes and chapters. For more information, please visit insuranceinstitute.ca. About the CIP Society Since 1998, the CIP Society has represented more than 17,000 graduates of the Insurance Institute’s Fellowship (FCIP) and Chartered Insurance Professional (CIP) programs. As the professionals’ division of the Insurance Institute of Canada, the Society’s mission is to advance the education, experience, ethics and excellence of our members. The Society provides a number of programs that promote the CIP and FCIP designations, continuous professional development, professional ethics, mentoring, national leaderships awards, and understanding of emerging issues in the industry. The CIP Society, on behalf of its membership and for the benefit of the industry, is proud to have contributed to the development of this research report. Please visit insuranceinstitute.ca/cipsociety. About the Institute’s research This research report represents the third in the Insurance Institute’s Emerging Issues Research Series – providing relevant and insightful research reports on the issues impacting the property & casualty insurance industry in Canada. The report joins the previous reports, “Automated Vehicles: Implications for the Insurance Industry in Canada,” “Cyber Risks: Implications for the Insurance Industry in Canada,” and the “Demographic Analysis of the P&C Insurance Industry in Canada,” that the Institute has been conducting since 2007. A French translation of this report is also available. For more information, please visit insuranceinstitute.ca/research. About the author of this report Paul Kovacs is widely known and respected in the industry as the founder and executive director of the Institute for Catastrophic Loss Reduction (ICLR), president and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), and is also an Adjunct Research Professor, Economics, at the University of Western Ontario. The Insurance Institute was pleased to contract with Paul Kovacs & Associates to research and write this report. Acknowledgements The Insurance Institute would like to thank the following organizations and/or people who reviewed, commented on and/or contributed to the report: Aviva Canada - Jonathan Spinner, AVP, Claims Transformation & Strategy, National Claims Baird MacGregor Insurance Brokers - Karen Ritchie, Vice President Financial Services Commission of Ontario Insurance Bureau of Canada Intact Financial Corporation - Karim Hirji, Senior Vice President, International & Ventures Markel International - Karen Barkley, President and Nishan Shan, Director of Finance Northbridge Financial Corporation - Ronish Pahwa, Director, Customer Experience & Innovation Paul Kovacs & Associates - Nikol Kovacs and Nancy Kovacs SP Designs - Stephanie Veltmann, Principal Designer + Owner ISBN:0-919244-28-9 Copyright © 2017 The Insurance Institute of Canada All Rights Reserved This research report is published in the public domain. When citing excerpts or the report in its entirety, please use the following citation: Sharing Economy: Implications for the Insurance Industry in Canada, The Insurance Institute of Canada, 2017. Sharing Economy: Implications for the Insurance Industry in Canada www.insuranceinstitute.ca EXECUTIVE SUMMARY Sharing Economy Implications for the insurance industry in Canada Executive summary “We are just beginning to glimpse the bare outlines of a new economic system entering onto the world’s stage—the collaborative commons [or the sharing economy]. This is the first new economic paradigm since the advent of capitalism and socialism in the early 19th century. So it is a remarkable historic event.” Jeremy Rifkin1 2 "People don’t want to buy a The sharing economy will present an opportunity and also a threat for the quarter-inch drill. They want a Canadian insurance industry over the next five to 10 years. Opportunity will quarter-inch hole."2 come for the insurance industry as millions of Canadians choose to participate as providers, consumers, or both in the sharing economy. Sharing platforms and their participants typically seek insurance that differs from conventional coverage, blurring the traditional distinction between personal and commercial coverage. Over time, this emerging market will grow in importance and value, presenting an opportunity for the insurance industry in Canada. The threat comes from the potential for disruption. Some insurtech and peer- The benefits of the sharing to-peer insurance companies will seek to compete directly with established economy are profound: insurance companies. Most of the new companies that will enter the Canadian • More sustainable use of idle or insurance market, however, are expected to offer unconventional services in underutilized resources competition with insurance intermediaries. Several other companies will offer services that may or may not be viewed as insurance by the industry and • Flexible employment options for contractors regulators, but are likely to shape public perceptions of the insurance industry. The timing when new competition will come in the Canadian insurance industry • Bottom-up self-regulating is unknown, but the experience of other industries shows that change can come mechanisms quickly and disrupt established providers. • Lower overheads leading to lower prices for consumers Expansion of the sharing economy will likely challenge the reputation of the insurance industry, including criticism of traditional insurance practices and • More closely tailored and behaviour. Many sharing platforms and their providers have expressed customized products for users concern about the difficulty in securing insurance products that meet their unconventional needs. Moreover, when peer-to-peer insurance companies enter the Canadian insurance market they are expected to promise simple products, transparent processes, lower prices, and customized coverage relative to established insurance providers. Criticism may erode consumer confidence in existing insurance providers. This report includes a discussion of various definitions for the sharing economy, the major driving factors behind its emergence, the importance and potential for growth being attributed to this new economy over the next five to 10 years, and the potentially significant implications for the insurance industry. 1 Big Think Editors, “Economic Shift: The Rise of the Collaborative Commons.” 2 Clayton M. Christensen, Scott Cook and Taddy Hall, "What Customers Want from Your Products," Harvard Business Review (January 16, 2006) as cited in The Clayton M. Christensen Reader. EMERGING ISSUES RESEARCH SERIES i SHARING ECONOMY IMPLICATIONS FOR THE INSURANCE INDUSTRY IN CANADA This report concludes with five recommendations for the insurance industry in Canada concerning the sharing economy, and five recommendations for managing change in the industry. Why is it that people have flocked so readily to this sharing model? Just a few decades ago large corporations and governments had the trust of most consumers. People felt comfortable and safe dealing with a brand name, a popular retail chain, the top rental companies, governments, the church, and society’s most affluent members because they were seen to provide reliable goods and services. The trust that people once placed in large organizations, however, has eroded. People have begun looking for an alternative to reliance on large corporations and government, and many have chosen to participate in sharing economy businesses that have sprung up in the last decade or so. Rachel Botsman, sharing economy expert and author of "The Changing Rules of Trust in the Digital Age," explains that there are two main reasons for this.3 First, institutions that were once considered safe are now suspect because of “wrongdoing, scandal, or sheer ineffectiveness.” Second, and perhaps the more durable reason, “It’s because institutional trust isn’t designed for the digital age.” Institutions are huge and centralized, while what Botsman terms “peer trust” is the opposite. This is a critical time for the Canadian insurance industry to become involved in the discussion about the sharing economy. 3 Botsman, “The Changing Rules of Trust in the Digital Age.” ii THE INSURANCE INSTITUTE OF CANADA Contents Executive summary ..............................................................................................................................................................................................................................................i Foreword ...................................................................................................................................................................................................................................................................1 Introduction ............................................................................................................................................................................................................................................................2 Six critical questions • What is the sharing economy? ...........................................................................................................................................................................................................6