Tech Platform Companies and the Gig Economy Face New Risks
An explosion of digital devices and increased interest in sharing goods and services have created a new marketplace that’s changing consumer behavior and expectations. Everything from dog-walking services to dinner delivery is available on demand. As this sector continues to evolve, it’s important for the platform technology companies driving it to understand and manage their emerging risks.
The Growth of the Platform Economy
There’s been exponential growth in the platform economy sector, which is expected to expand to an estimated $335 billion by 2025.1 Platform economy companies create the technology and develop the apps – the digital platforms that allow markets to make connections between providers and consumers.
The platform economy is often equated with the “sharing economy,” which refers to the way assets or goods are shared via the internet, and the “gig economy,” for the individuals performing the services.
Technology innovations, as well as the availability of skilled gig workers to meet consumer demand, make it easier than ever to match supply and demand on a digital platform. Consumers are showing a sustained interest in this type of on-demand business exchange, using apps on smartphones to connect with service providers, book a vacation home, order dinner or buy a handmade necklace, within minutes.
What Are Emerging Risks to Platform Economy CompInsurtech Trends and New Developmentsanies?
To continue their uninterrupted growth, platform economy companies should take steps to protect their intellectual property and manage the emerging risks they face, including:
- Cybersecurity. The increased scale of platform economy companies means increased volumes of stored personal data and payment information. This increases the likelihood of being targeted for a cybersecurity breach, which could compromise important customer data or information, causing damage to a company’s brand and reputation, as well as costly notification and regulatory requirements. Cyber insurance can help protect companies before, during and after a breach.
- Errors and omissions. If the software that powers the platform fails, it could lead to lost revenue for partners in the platform’s ecosystem. In today’s increasingly litigious environment, that could potentially expose platform economy companies to an errors and omissions (E&O) lawsuit. Technology E&O insurance can help protect companies from this type of professional liability.
- General liability. Your platform company touches the lives of many people on a daily basis, including your contractors, clients or customers. At any given point, one or several of them could claim that your platform operation caused them harm, injury or loss and start legal action.
How Can an Insurance Carrier Help Protect Platform Economy Companies?
Working with an insurance carrier that has a deep understanding of the risks facing technology businesses in general, and the platform economy in particular, can be a competitive advantage.
“We understand that the platform economy space is changing quickly and that companies face complex exposures,” said Mike Thoma, Travelers’ Global Practice Lead.
“We have complex claim handling experience,” Thoma said, citing the potential for complicated vicarious liability lawsuits that can affect platform companies.
“Underwriting appetite consistency is also important in choosing an insurance carrier,” Thoma said. This means you’ll want an insurance provider that is committed to serving your industry for the long term. An insurance partner should have a deep understanding of the sector and a willingness to issue insurance policies year after year.
Looking Ahead to the Next Evolution of the Platform Economy
As the platform economy sector evolves, so too will the type, severity and complexity of risks facing these technology businesses. Insurance can play a critical role in mitigating the effects of risk; however, it also requires an insurance partner that keeps on top of the evolving threats to your industry and the unique risks specific to your business.
So, it’s important to work with an insurer who will monitor and communicate shifts in the threat landscape as they occur and help you make the right insurance decisions at the right time to protect your tech business from potentially devastating losses.
Sources: 1 https://www.brookings.edu/research/the-current-and-future-state-of-the-sharing-economy/