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Peer-To-Peer Car Sharing: Solving the Insurance Challenge
The sector’s long-term future success will depend on better risk management and a more effective partnership with the insurance industry says Aon’s Nick Watson – Client Director, Affinity Consulting, and Marc Roberts – CEO Officer at Hiyacar.
Over the last eight years, seven peer-to-peer (P2P) car sharing companies have, at some stage, been in operation in the UK. But despite optimism that the P2P model – where car owners allow their vehicle to be used by others for short rental periods – could herald a new era of flexibility in mobility, many operators have hit the skids. In the past 12 months alone, the number of P2P operators in the UK halved from four to two, leaving only Hiyacar and Turo currently open for business.
This decline in market participants can be attributed to several factors such as a restriction of access to investor capital given the unfavourable macroeconomic outlook, competition between operators, and commercially owned fleets looking at more innovative rental models. Insurance has also been a challenge when it comes to finding a profitable yet competitive market balance between cover and price. To overcome the insurance hurdle and help ensure a sustainable future for P2P car sharing, more emphasis on exceptional risk management from the operators themselves and the deepening of the two-way relationship with the insurance market will play an essential part in helping this innovative car rental model fulfil its early promise.
Insurance Hold-Up
When P2P car sharer RideLink raised more than £1 million in 2017 during its final fundraising1, few of those investors would have expected that the business would shut down only months later, citing insurance losses. But they were not the only car sharing business to attribute their failure to insurance problems. easycarClub, for example, was another to fall victim to insurance costs and stopped operations in 20182.
But why the rising insurance issues? Although car sharing operations in the UK can be more complicated than in some other countries due to a variety of factors, the UK insurance industry initially welcomed this innovation and there were a number of insurers willing to provide cover which helped to allow the P2P car sharing model to grow. However, changing market dynamics have changed insurers’ appetites for providing cover for car sharing operators. Traditionally, the UK motor insurance market typically ran with loss ratios close to or at 100%, with profits made on other lines of insurance business or through investment gains. As investment returns in the market have slowed, however, insurers have started to push towards creating a more profitable loss ratio without the relying on other factors of investment and other lines. This has resulted in the industry’s growing caution towards Motor in general.
The ABI has stated that when looking at annual averages, motor premiums were 25% more expensive in 2023 than in 2022.
According to the ABI, rising premiums reflect increased insurance company costs – repairs are getting more expensive because cars are technically more sophisticated, they’re taking longer, meaning courtesy cars are given out for longer, and there are fewer qualified mechanics to work on the growing number of electric vehicles.
Theft of high-end performance and luxury cars is also pushing insurers’ costs ever higher.
The cost of writing-off damaged cars has also increased because of higher prices in the secondhand market, which insurers have to match. And insurers own costs – wages, commercial rents, energy bills and the like – are increasing, as they are for all businesses.
For P2P car sharing platforms, in addition to the above factors, they often face challenges with the lack of active risk management due to the nature of the operating model. This means that insurer appetite has declined, and the P2P platforms experience disproportionate premium increases, leaving only those with strong balance sheets and/or demonstrably stronger risk management processes able to continue operations.
Exceptional Risk Management is the Answer…
What, then, is the answer? Is the P2P car sharing model broken or can it still deliver on its promise to shift many from ownership to sharing a car and delivering all the related environmental and societal benefits that such a move can provide? The positive news is, there is a future for P2P car sharing companies provided they think about incorporating exceptional risk management processes in their operations, above and beyond the criteria imposed by the insurance policy. That could mean, for example, by introducing additional checks to prevent ‘bad actors’ from getting into a car as early as possible in the transaction, and adoption of AI tech-based solutions such as Aon Fleet Risk Intelligence which provides actionable insights based on driver, vehicle and contextual data to help both traditional and future mobility fleets.
It’s also vital that P2P car sharing platforms build strong partnerships with their insurer when it comes to sharing information and in areas such as providing the flexibility to alter criteria where it would be in the best interest of both parties. Being proactive with data can allow P2P car sharers to challenge an insurer's attitude to their business but it must be linked to risk.
…Plus Great Service
Of course, insurance is just part of the puzzle and P2P car sharers will need to focus on delivering the best customer experience possible, with open and honest pricing that can be justified to users. Get this combination right and there is no reason why P2P car sharing should not fulfil its potential in the UK, as people become more environmentally conscious and explore ways to reduce and rationalise their car use, while businesses also look to the ESG benefits they can generate by adding a car sharing partnership to their employee benefits.
Aon’s approach to future mobility solves for the emerging needs of mobility players. From those looking to evolve mature business models, to those driving rapid growth from a start-up to scale up, Aon are a partner supporting a client’s growth cycle. We help our clients to make better decisions to protect assets, attract and retain the best talent and control risk. If you want to talk to us about this or any area of future mobility come and meet our team at Stand XX at MOVE2024 or contact Benjamin Hindson [email protected]
The information contained in this document is intended to assist readers and is for general guidance only. Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Through actionable analytic insight, globally integrated Risk Capital and Human Capital expertise, and locally relevant solutions, our colleagues in over 120 countries and sovereignties provide our clients with the clarity and confidence to make better risk and people decisions that help protect and grow their businesses.
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1 https://www.hiyacar.co.uk/blog/2021/history-of-uk-p2p-car-rental/
2 https://www.hiyacar.co.uk/blog/2021/history-of-uk-p2p-car-rental/
