Insurance in Free-Floating Car-Sharing

The shared mobility market has been significantly expanding during the last couple of years. A major part of the global market is taken by E-hailing, but carsharing also has its fair share. In addition, car-sharing has great potential and constant growth is making it one of the most interesting topics to follow when it comes to mobility.

There are several things that still make this concept quite complex to introduce in certain cities or markets.

Reasons why car-sharing is still difficult to introduce to certain locations

But even besides the setbacks, car-sharing has grown by over 30 percent compared to the last year. Also, what makes it attractive is that in cities where the cost of owning a car is high, car-sharing can save money. Customers don’t need to make the initial investment of buying the car, nor to think about the maintenance, parking spot, or insurance.

What types of car-sharing exist in the market?

There are several categories in the car-sharing market, like peer-to-peer car sharing, free-floating car-sharing, or stationary car sharing.

Source: Car Sharing in Europe – Business Models, National Variations and Upcoming Disruptions, Deloitte

Free-floating car-sharing means that customers can drive and park freely by registering with a specific car-sharing provider. Cars are owned by the car-sharing provider while consumers pay for the service, mostly per minute, and mainly for a short period – up to a couple of hours in a day. 

What are the existing issues with car-sharing?

For privately-owned vehicles, insurance is a major cost driver, especially for inexperienced drivers.

The market of traditional car insurance is quite mature and well developed. Also, market and insurance products are constantly evolving, offering different attractive insurance products like pay-per-usage, telematics, pay-per-mile – that can significantly lower the “traditional” premium amount. 

Most car-sharing providers include Loss Damage Waiver (Collision Damage Waiver) which limits the financial responsibility of the driver. Sometimes that responsibility is as high as 1.000 euros. If customers would like to lower their financial responsibility, they must make an additional payment for increased coverage. 

During Cyber Monday in Germany, one of the major car-sharing providers offered a discounted price for all their vehicles, which was 9 Euro cents per minute. For full insurance coverage with no deductible, customers would have to pay an additional 10 cents per minute. So, during Cyber Monday, with reduced prices and increased insurance – the protection was more expensive than car-sharing service with basic coverage included. 

Additional inconvenience is that the users need to select increased protection for every ride they start. That can be avoided by booking some of the special packages, depending on the provider. In addition, if you use several car-sharing services, it might get difficult to know how well protected you are during each of your rides.

A major problem here is that every car-sharing provider has a different insurance coverage model, booking process, protection overview, etc. For a proper car-sharing experience, in the future, car-sharing companies should unite to:

How car-sharing companies should unite to provide better coverage

The crucial point here is that innovation should not be initiated only by the car-sharing provider but also by insurance carriers and Insurtechs. To model an insurance product that will properly cover drivers, passengers, third parties, and the business owners is a complex process where synergies and different perspectives are needed.

Let’s consider possible mitigation strategies topic by topic.

1. Lack of unified processes for booking additional protection

Booking a car should not be slowed down by booking insurance over and over again. In the current major car-sharing provider’s app, you can avoid booking insurance every time by selecting one of the more advanced packages, but that makes it difficult to switch between different providers and utilize the whole car fleet available in your vicinity. 

Mitigation strategy

Introduce separate insurance platforms for buying (subscribing to) specific coverage options per car-sharing provider or across multiple providers. There are several benefits for customers in this case:

Benefits of a unified process for buying additional protection

It may seem counterproductive for companies to move out of the business of making the best deal to their customers. However, by opening up to embedding multiple insurance options into their service, they will deliver better personalization, and be able to focus on their area of expertise instead – which is car-sharing.

2. Insurance history is ignored

If rentals consider your age, private car insurance your previous insurance history, and your way of driving – why not share the same information with car-sharing providers?

Mitigation strategy

Car-sharing providers should ask customers to provide the insurance history, and lower their premiums as time passes. The truth is that car-sharing is complex for inexperienced drivers. Having your own car at the beginning of your driving career makes it easy to get used to, get a proper feeling, and get comfortable driving. In the car-sharing world, constantly changing a car may be overwhelming even for experienced drivers. We can certainly assume that driving car-sharing cars consistently makes it an experience of its own.

3. No possibility to use private insurance, across different providers

Some insurance providers take into account if you use car-sharing services regularly and factor it into calculating your premium. In case you have hybrid mobility needs (using private, business, and car-sharing vehicles), it makes sense that your insurance provider should be able to cover all your needs via one single policy. 

Mitigation strategy

A solution to this problem should be found through collaboration between insurance and car-sharing providers. An insurance provider should come up with a new way of calculating risk and premium in such complex usages, whilst car-sharing providers should become open and accept such models. Insurtechs may bring in innovations in the area of calculating premiums in real-time or in a usage-based manner, taking into consideration every driving experience no matter the platform.

Many challenges, huge potential.

The car-sharing industry is here, developing rapidly. And it is here to stay. There is no right or wrong approach to this day because every market is unique, with complex needs that are constantly evolving. It puts a lot of pressure and urgency on insurance providers which should result in insurance products that enable consumers to live a better, well-protected life. 

Insurance is a necessity that should never be a showstopper for innovation.

Branislav Vidojevic

Senior Software Engineer

Branislav Vidojevic is a Senior Software Engineer at Hedwell. He is an experienced software engineer specializing in the insurance industry digitalization. His broad expertise includes full-cycle development in both near-shore and off-shore setup, as well as in-house engineering teams. Combining his passion for Insurtech and extensive cloud and serverless computing skills, Branislav helps Hedwell customers innovate their processes and offerings. In his free time, Branislav enjoys skiing and cycling, and he also considers himself to be a true car-sharing enthusiast.

[email protected]