This is part 2 of a series that we’re writing, examining the role of risk in online marketplaces. In case you missed it, here’s a link to part 1.
Everybody knows losing money sucks. In fact, the sting of losing a hundred dollars is greater than the joy of gaining a hundred dollars. Product Managers expend large amounts of time, money, and effort trying to identify pain points (like losing money unexpectedly). So it’s surprising that more marketplace PMs don’t talk about the opportunity there is in solving for the variability in supplier earnings.
We get it. Insurance isn’t sexy. But insurers recognize that there is money to be made in protecting people from the downsides of risk. People make monthly payments for health insurance because they understand that paying a small amount of money every month is worth avoiding the pain of paying a hundred thousand dollars in out of pocket expenses for a dislocated shoulder. That and the peace of mind that comes with having downside protection.
The case for insurance in marketplaces
Let’s take a slight detour to understand where insurance fits into marketplace design. For marketplaces to be successful, they need to have three characteristics:
- A critical number of buyers and sellers
- An easy way to match the right buyers with the right sellers
- A compelling reason for buyers and sellers to transact inside the marketplace rather than outside it
It used to be that the ability to match the right buyers with the right sellers was the hardest problem. eBay and craigslist belong to the first generation of online platforms that solved that by introducing search engines to the marketplace. However, this soon led to a second problem – trust (or the lack thereof). eBay and craigslist struggled to ensure that each party in a transaction held up their end of the deal. Thus, with credit cards on file, customer reviews, and verified government IDs – Airbnb; Doordash; and ride-sharing platforms, like Uber and Lyft; went about building the trust layer that made it compelling for both parties to transact on their platforms.
As we enter year 79 of the Uber-Lyft rivalry, it is increasingly evident that these industries are going to be duopolies for a while (at the very least). Thus, it is not enough to build value propositions that compel buyers and sellers to use any online platform. These companies need to make sure that buyers and sellers use their platform. One way a marketplace can differentiate itself is by providing income Insurance.
Let’s make insurance sexy again
Marketplace platforms are becoming the preferred way to work not only for ridesharing and food delivery workers but also for designers, engineers, and analysts. Now is the time for marketplaces to think about the downside risk that their suppliers face and to hire “insurance product managers” and risk analysts to build value for the sellers on their platform. If we only take utility-maximization into account, people pay slightly too much for the insurance they need. This is an opportunity for platforms to turn a profit while better serving the needs of their suppliers.
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I am a finance and strategy analyst with an entrepreneurial background and research experience at the Federal Reserve. I am interested in tech products, network economics, and corporate finance.
I’m a product and strategy professional with 6+ years of experience in consumer technology and strategy consulting. I write about product management, business strategy and my experiences as a young professional in consumer and B2B software.