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Insurance and the gig economy

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THE rise of the gig economy means not only workers, but those who insure them, are having to adapt. Take third-party liability insurance—the sort that would pay out if, for instance, a courier hit and injured a pedestrian. An employee driving a company van would be covered by a standard commercial-insurance policy. But “gig” couriers, working when they wish and using their own cars, must often insure themselves. Even if they have personal cover, it will not usually pay out for accidents that happen while they are driving for work.

Among the firms seeking to fill this gap is Zego, which sprang up to serve scooter couriers such as those working for Deliveroo, a food-delivery service. Deliveroo and its rivals require proof of insurance from couriers, but had no easy way to check it was valid. Couriers, meanwhile, were often loth to pay stiff premiums. Harry Franks, formerly of Deliveroo and co-founder in 2016 of Zego, spotted an opportunity and convinced insurers that a different model could be profitable.

Zego now brokers third-party liability insurance for couriers working in Britain for nearly a dozen different firms such as Amazon or Quiqup (it plans to expand to Ireland and Spain). Couriers pay by the working hour. Coverage starts when they activate the courier’s app on their phone, and stops when they sign off.

Many gig workers want to go beyond third-party coverage and buy coverage for themselves, for example against illness. For platforms, which insist their workers are independent contractors, not employees (and thus do not create a liability for payroll taxes), providing such specialist insurance is a way to offer some of the perks normally associated with employment without having to concede that point.

A good example is the insurance that Uber, a ride-hailing company, now offers through Aon, an insurance broker, in many American cities. Drivers can choose to be covered against illness, disability and death for as little as $0.04 for each mile they drive. Where it is offered, Uber has raised the rate it pays drivers by the same amount, making the resemblance to an employment benefit even stronger. For regulatory reasons, drivers must opt in. But a similar agreement between Uber and AXA, a French insurer, for Uber’s food-delivery arm, UberEATS, in nine European countries gives all couriers accident, sickness and third-party liability coverage, with no need to opt in and no charge.

Uber’s policy for its drivers in Ontario through Intact, a local insurer, and a similar offering from Lyft, Uber’s rival, through Aviva, in Toronto, combine personal and third-party coverage. Both take a three-stage approach. The first kicks in when a driver launches the Uber (or Lyft) app. The second, with higher coverage, starts once a ride is accepted. The third runs from when passengers are picked up until they are dropped off. These schemes resemble commercial-fleet policies in structure, points out Mamta Kohli of Aviva, but differ in their sporadic nature.

Some gig-economy insurance schemes are more inventive still. A scheme from AXA for users of BlaBlaCar, a French long-distance car-pooling service, covers repairs and provides alternative transport if a car breaks down. Clutch, a car-subscription startup in America, has a commercial-insurance policy that covers users not only in any of its cars but also when they borrow a friend’s car. This breaks the usual pattern of commercial policies being tied to specific vehicles, and of personal policies alone being tied to individuals.

Such innovation is not always easy for established insurers. Their software systems can be so ancient that policies have to be printed out with standard wording and modified with a typewriter, says Jillian Slyfield of Aon. Regulators can be slow to accept novel arrangements. And for a firm that pays by the hour and relies on workers having their own equipment, providing insurance can be an outsize expense. Ms Slyfield complains that some advertise coverage they do not in fact have.

In the longer term insurers face a more fundamental challenge: disintermediation. Airbnb, a platform for booking stays in private homes, has offered a “host guarantee” against theft and vandalism since 2011. Although it works like insurance, no specialist firm is involved. Airbnb makes payouts itself. Curtis Scott of Uber boasts that the firm is “perhaps the most educated purchaser of insurance ever”. It does a lot of the calculations for pricing and underwriting its insurance risk, and has a potential sales platform in the form of its app. For Uber and its peers, the next step could be to expand their gig offerings into insurance.

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Japan still has great influence on global financial markets

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IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.

“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.

This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.

One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).

But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.

Tokyo storm warning

These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.

Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.

What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.

Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.

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