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The Need: Peer-2-peer sharing, resale markets, and other innovative business models which allow products to be used more extensively, are the lifeblood of the circular economy. However, they rely on an infrastructure of trust, that is not served by traditional insurance products.
The Solution: Omocom has developed an ‘on-demand’ microinsurance product which is only active while an item is being used, transported, accessed or similar, under a small time duration. Using transaction data they can prevent fraud and alleviate risk, making it safer to share.
What makes it particularly smart: Omocom’s insurance product can easily be integrated into existing digital sharing platforms. Insurance can be calculated on an individual transaction basis, or on an ‘all-in’ basis, where all transactions generated by the platform are automatically insured.
Benefits: Access-over-ownership business models increase the use of products and reduce the volume of new products needed to serve a population. This benefits the environment, as well as expanding choices to citizens and creating potential for new forms of revenue generation.
Increase use, create value
Some of the most powerful arguments for the circular economy lie not in the avoidance of negative impacts, but in the many new forms of value creation that can be realised through better design and the adoption of new business models.
One of the most fertile areas for capturing this potential value, resides in those parts of the economy where products or services are underutilised. For example, where expensive, resource intensive equipment stands idle for most of the time, or where vehicles or buildings operate at an occupancy rate well below their full capacity. This type of lost potential is referred to as ‘structural waste’, and exists at many levels. From drills that are used for an average of 13 mins in a lifetime, to European cars that are parked for 92% of the time (Ellen MacArthur Foundation (EMF) 2015), to vast areas of urban real estate that are unoccupied even during the working day.
Addressing structural waste, by scaling circular business models such as sharing platforms, is both an economic growth opportunity predicted to increase from EUR 28 billion in 2016 to EUR 570 billion by 2025, but has the potential to improve society in other ways. In the US for example, over half the urban area is occupied by roads and parking space. Imagine how our cities would be transformed by shifting to a culture of access rather than ownership, at least for a proportion of things we use in our daily lives.
Here’s the rub
The many benefits of the peer-to-peer sharing economy are clear in theory, but there are some practical challenges that are holding back large scaling. Digital technology which has transformed many other parts of the economy is playing a key enabling role in making underutilised assets more visible, but who is responsible when things go wrong?
In 2016, Ola Lowden, an e-commerce expert for the Swedish government, was studying the projected growth of sharing and resale platforms, and exploring the impacts on issues such as taxation, competition, and labour laws. One of the key insights arising from this study, during which Ola consulted with almost all of Sweden's sharing platforms, was that 74% of citizens were reluctant to advertise their own equipment, because of lack of confidence in the protection that underpins the transactions. This confidence gap could not easily be filled by traditional insurance products. The terms-of-use of some platforms do nothing to ameliorate these concerns. A study by insurance provider Axa, identified at least one peer-to-peer explicitly stating that it is “merely a platform”, going on to renounce liability for any “claims, demands or damage”.
Sweden’s Ministry of Finance was keen to address the challenges holding back the expansion of the circular economy, and through the Association of Swedish Insurers, encouraged the market to create an insurance product that would support the new direction for the economy.
Disrupting a very old industry
Insurance has been a feature of commerce, at least as far back as the liability sharing agreements drawn up between Babylonian city dwellers and sea merchants almost 4000 years ago. Almost all insurance products are based on ownership, where an owner, say of a ship, building or painting, makes a payment (or recurring payment) to a company or individual based on the value of the asset, who insures or ‘underwrites’ the asset, guaranteeing a payment if damage or loss occurs.
For a rental company that leases from a fleet of cars or a large stock of photocopiers, traditional insurance can still work, at least for catastrophic insurance, where for example fire or flooding destroys an entire inventory. To cover damage to individual items, rental companies integrate insurance into the rental agreement, setting their own liability terms, and if things go wrong, they ‘self-insure’, i.e. pay the damage costs themselves.
But what about the new world of peer-to-peer access services, which “grant customers limited access to goods without any transfer of ownership” (Wirtz et al 2019). For these microtransactions, the traditional insurance model breaks down due to the complexity of many different owners, assets, risk profiles, and the variety of access durations which are often small. To compound this, there exists a chicken and egg situation, in which the viability of a new insurance product relies on a certain volume of transactions, but the demand for transactions is hampered by lack of insurance.
"We have developed a tool to create trust in a particular moment in time"
From the seed of an idea to a successful launch
In 2017, recognising the critical importance of appropriate insurance for driving the supply side of the sharing economy, Ola and his partner Emmanuel Badehi, left their secure employment with the Swedish government, to set up Omocom, thus beginning their journey of entrepreneurship in the Fintech world. From the outset the winds were favourable.he pair had identified a well-defined problem that was holding back a clearly growing consumer trend. To help them, the majority of sharing platforms are digital, so algorithms and APIs (software interfaces), make it possible to integrate new services into existing platforms, and in theory at least, automate the generation of microinsurance policies.
To develop the risk assessment framework that underpins Omocom, they enlisted the help of Stockholm University mathematics professor Filip Lindskog, who used the transaction data that Ola had collected in his national study, to craft a risk model. Using this model, that is constantly refined as new platforms sign on, an algorithm was developed that automatically generates a policy for each transaction.
A number of breakthroughs facilitated the successful launch in October 2019 of the Omocom insurance solution. After 25 attempts to find a company that would act as their reinsurer, they persuaded an incumbent insurance broker called WR Berkeley to underwrite their policies. Additionally they were able to get two early clients on board - Tiptapp a furniture moving company that leverages unused vehicle space or people with time on their hands; and Hygglo - a peer-to-peer equipment sharing platform.
A typical Omocom insurance arrangement comprises the following: suppliers to the sharing platforms have the option to accept or decline a microinsurance policy at the point of transaction, covering loss, theft or damage of their asset. The cost of the insurance ranges between EUR2 and EUR6, with a maximum coverage of EUR1000. The protection lasts for the duration of the rental or delivery time. The other option is for the platform to accept an ‘all-in’ insurance where all assets on the platform are insured at all times.
Creating trust in a point in time
Ola believes that the growing traction of the company and the main driver of the crucial agreement with WR Berkley is that Omocom is not competing with traditional insurance companies. Instead it has “developed a sales tool which creates trust in a particular moment in time”. The risk profile (termed loss ratio = accumulated policy payments/accumulated damage awards) for the reinsurer is very different from a typical insurance arrangement. For one there is no ‘long tail’, the insurance period has a short, well-defined timeframe, so there is no need to make a significant provision for the possibility of an unexpected insurance claim in the future.
Early signs are that Omocom is making great strides in building trust in the circular economy. Launching with just two companies,, within one year, 18 platforms are now on board, across Sweden, Norway, and Finland. With over 70% of their new client pipeline coming from unsolicited inbound approaches, it seems as though the circular economy and forward-thinking citizens can’t get enough of Omocom’s service.
Published 5th Nov 2020