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Zego provides usage-based insurance to gig economy workers. It highlights why digital doesn’t necessarily mean more data for insurers and why digital propositions could, in fact, increase the distance between insurers and their customers and extract a high price for doing so. Oxbow Partners is helping insurers develop a response to these challenges.

Zego was founded in 2016 by Harry Franks, former Head of Global Procurement at Deliveroo (a food delivery service). Harry identified a gap in the commercial insurance market for gig economy workers who work fewer than 30 hours a week. As Harry explains: “workers who work a few nights per month were being forced to purchase full commercial insurance policies. Their insurance didn’t fit their desire for flexible working.”

Workers log into the Zego app to register and buy cover. Once purchased, Zego integrates directly with the driver’s preferred gig economy platform and cover starts and stops automatically when they start and stop shifts.

Harry believes this automated approach is critical to mitigating fraud: “a big challenge with part-time workers is getting an honest view of when they are working. Integrating directly with the platforms removes any incentive to misreport working hours.”

The company has launched two products to date (UBI for scooter drivers in August 2016 and for car drivers in September 2017). The app has logged “millions of driver hours” according to Harry. The team is now more than 35 people. Capacity is provided by 4 (re)insurers including Aviva and Munich Re. They have numerous partnerships with gig economy platforms including Deliveroo, Quiqup and Subway.

Zego raised £6m in a Series A funding round in November 2017, led by Balderton Capital, taking total funding to c.£7.5m. Harry is bullish about the future: “we’ve made real progress in the last year. In the next year we want to consolidate our position in the UK and grow into new European markets”.

The Oxbow Partners view

The element of Zego’s proposition that we like most is the integration to the gig economy platforms. We are sceptical, generally speaking, about any insurance proposition that requires customers to engage more with their cover, including many UBI propositions. Zego gives its users the benefits of UBI cover without the hassle (or moral hazard) of manual models.

But let’s consider the insurance angle: Zego highlights some major risks for insurers. (The analysis below is a simplification of our thesis.)

First, the cost of distribution.  We question (rhetorically, perhaps) how many insurers would be able to replicate the Zego proposition and integrate with digital partners direct. In the short term this doesn’t matter: insurers will make progress on their innovation agenda by taking the low-tech route and partnering with distributors. But this value chain is expensive: a gig economy platform and a broker who both want to be paid from relatively low-cost niche products with few (if any) opportunities for insurers to differentiate themselves. If insurers don’t create strategic optionality in their distribution, they will have little negotiating leverage in the future. (It wouldn’t be the first time that insurers have discovered the cost of “outsourcing” technology to intermediaries – consider the software houses in UK SME for example.)

Second, data asymmetries. Insurers are a long way away from the customer in the Zego model. The gig economy platform and digital intermediaries will in future determine how much customer data (and access) insurers get. Whilst most of our clients are worrying about how to handle the increasing amount of data being generated by technology, the amount of data that insurers actually get in the future could conceivably be lower than they get at the moment.

That is an uncomfortable place for the industry right now. Oxbow Partners is currently helping a number of insurers and brokers develop their response to these challenges.

Businesses doing similar things to Zego include Slice Labs (Bitesize) and Metromile.

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George Hanks

George Hanks is a Consultant at Oxbow Partners. You can reach him at ghanks@oxbowpartners.com.

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