In many service-based businesses, client selection is a crucial prerequisite for success. For example, attorneys avoid cases without merit and medical providers accept new patients who are a good fit for their specialty. The same is true for sharing platforms. While you want to maximize the volume of users on your platform, accepting anyone and everyone is a strategy that can bankrupt you.
High risk users can bring fraud and illegal behavior that leads to claims. Frequent and severe claims lead to unaffordable insurance premiums, making it harder to achieve the desired margins.
Fortunately, there is a better way. By leveraging data, you can make small adjustments in your user selection process to create a big impact on your sharing platform ROI.
A Low Decline Rate May Not Be the Right Priority
You want to have as many people using your platform as possible, so you try to avoid declining a high percentage of users. On the surface, that makes sense, but there’s more to the picture than a low decline rate.
Let’s say you want to keep your decline rate at below 2%. That sounds good, and it is doable. However, it may hurt your ROI in the long run. By keeping your decline rate below a set limit, you’re bringing in more high-risk users. This can lead to a higher frequency of losses, and that can lead to greater claims costs and higher premiums. Your profits shrink, and you have less to invest in growth – the exact opposite of what you were trying to accomplish in the first place.
Although it may involve turning away some revenue in the short term, keeping out high-risk users and bad actors can be crucial to your long-term success. To see why, compare the potential revenue from a single high-risk user to the potential costs from a major loss, including both the immediate claims costs and the long-term impact on insurance rates. When you crunch the numbers, it’s clear that good screening policies just make sense.
Leveraging Data to Control Costs
You need to find the right balance between strong growth and strong risk management. Data can help you find that middle ground.
There are three key types of data that platforms should use in their screening processes:
- Data to help you identify fraud, including identification fraud and credit card fraud.
- Data to help you understand financial stability, so you determine whether the user will be able to pay the deducible if a claim occurs.
- Data to help you identify insurance risk or the probability of a claim.
With screening measures in place, platforms can reduce incidents of theft, fraud and claims by 22% or more. This results in lower claims costs and, ultimately, lower insurance premiums. This case study illustrates how one company achieved these results.
Deploy A Proactive Process
Sharing platform leaders often start to pay more attention to their insurance program after they’ve already experienced a major or frequent losses and they’ve seen their premiums skyrocket as a result.
Ideally, proactive risk management should start before losses and insurance costs get out of control. After all, you can’t go back in time and prevent a claim that has already happened. If you’re in a bad situation already, bringing your premiums back down may require some new risk management strategies, and that can take some time – including three years to improve your loss runs. Of course, the sooner you get started, the sooner you’ll see results.
While it’s important to focus on long-term goals, frequent check-ins and reviews are essential to making sure you’re on the right track. A quarterly business review is a proactive and strategic way to review data and make any needed adjustments to keep you moving forward and scaling. Monthly check-ins provide necessary support and the chance to react to any developments in order to tweak the strategy and assess new opportunities.
Choosing Your Strategy
Growth at any cost is not sustainable. If you want to scale a sharing platform with the potential for long-term success, you need to manage your risks, and that involves using a data-driven risk management approach to user selection.
With the right data, you can see how your screening decisions can impact your claims, insurance premiums and profitability.
Once you’ve determined the selection criteria that best support your goals, you can focus on other decisions, such as whether you want to stick with traditional insurance or switch to a self-insured retention strategy. In fact, once you have your losses under control, a self-insured retention strategy can be a great way of increasing your profitability and truly reaping the rewards of lower claim rates.
DigiSure provides screening, insurance and claims administration services – all powered by insightful, industry-tailored analytics. We can help you develop a risk management strategy that supports your sharing platform ROI goals.
