Source: Upwork Report: Freelancing in America 2019
The Signal: In the US alone, 57m people freelanced in 2019. This number, representing a significant percentage of the American workforce (35%), grew by 7% since 2014, compared to 2% growth in the non-freelance workforce. An even sharper increase in the self-employed was expected, with 27m Americans indicating in 2017 that they were considering a move to self-employment by 2020 -- a shift that would have tripled the self-employed population from 15m to 42m.
Fewer than 2m Americans actually took the leap. Lack of traditional safeguards like health insurance and paid sick days have deterred would-be freelancers in the past, but as we wake up to a new world, the coronavirus may force new working models on us. With some economists forecasting that as many as 1m jobs could be lost in April, many people will be seeking new work regardless of whether they’re signing a 1099. And if we look abroad, there are examples of this already happening.
Source: Google Trends
Bread Funds, or "Broodfonds" as they are known in The Netherlands where they originated, are gaining popularity with the self-employed as a pioneering model of self-organizing, peer-to-peer (P2P) insurance. BreadFunds offer an alternative to private income protection insurances that are unaffordable for some and have many exclusions, such as no coverage for pre-existing conditions.
They work like this: A group of typically 20-50 self-employed people create a fund, make monthly payments into it, and then the fund provides basic monthly income for those too ill or injured to work. Exclusions for entering a fund do exist, but are less stringent than typical insurance protection:
All registered funds fall under the supervision of De Broodfond Makers, an umbrella organization that provides services to Bread Funds.
Source: De Broodfonds Makers
Members are able to receive a maximum of 2 consecutive donations per illness, but can claim benefits for a maximum of 2 years. De Broodfond Makers even suggest that members take out private disability insurance in conjunction with their membership, as there is typically a 2-year waiting period with these private plans. It’s also worth noting that any monthly payouts received are classified as voluntary donations from the fund and are therefore not taxable as income.
Source: broodfonds.nl, currency conversions at 1.114 EUR/USD as at March 15, 2020
Interviews with members of a Bread Fund in Amsterdam revealed 3 predominant reasons why entrepreneurs favor Bread Funds over private insurance alternatives including: 1) cheaper membership; 2) shorter qualifying periods; and 3) networking opportunities.
The Opportunity: In addition to the monthly contribution, Bread Fund members pay a once-off registration fee of €225 (~$250) to De Broodfond Makers and a monthly administration fee of €12.50 (~$13.90), of which €6.50 (~$7.23) is paid to their Bread Fund and €6.00 (~$6.67) is paid to De Broodfond Makers. By using the total number of Bread Fund members above, we can estimate that the umbrella organization had an annual income from registration and administration fees of ~$3.5 million in 2019.
Note: currency conversions at 1.114 EUR/USD as at March 15, 2020
Anecdotal evidence from interviews with fund members suggests that there is money being left on the table as members would be willing to pay more than the ~$13.90 monthly administration fee in order to access the benefits and services provided by their fund and De Broodfond Makers. Members of one fund interviewed voluntarily elected to increase their administration fees by 50% in order to have access to more frequent networking opportunities.
When we consider that only ~2.22% of the 1.1m self-employed people in The Netherlands currently belong to a Bread Fund, there is significant opportunity for growth. In a country like the US, where there are an estimated 43.5m self-employed people and long-term freelancers, we can estimate that an American equivalent of De Broodfond Makers could generate ~$77m per year in admin fees alone, not including registration fees, from 2.22% of the self-employed and freelance workforce.
*Note: Assuming $6.67 monthly admin fee and 2.2% market share **Note: Includes 28.5 million long-term freelancers and 15 million self-employed
Interest in the Bread Fund model has spread. In 2014 the UK conducted a successful feasibility study which led to the establishment of a pilot program in 2017 and considerable interest from the self-employed as well as the groups representing them.
While the term "Bread Fund" is unique to The Netherlands, P2P insurance models in general are not. A number of P2P insurtech players that provide a range of products have emerged including Friendsurance in Germany and Australia, Bought by Many in the UK, TongJuBao in China, Huddle Insurance in Austria, and Teambrella in Russia. One company in particular, VouchForMe, provides an online platform that enables freelancers and entrepreneurs to form and manage their own P2P income protection insurance groups of 25-50 members -- much like a Bread Fund. The company charges users a one-time activation fee of €100 (~$111) and a monthly platform fee of €5 (~$5.50).
The unfortunate but likely reality that many people will be forced into self-employment as a result of the COVID-19 crisis may be the catalyst for P2P income protection insurance models to surge across the world, especially in countries like the US that haven’t yet embraced the model.
Focusing on a niche ripe for disruption, and tailoring an offering according to a specific risk profile is one route to market. In the US, there are some professions that have a high proportion of freelancers, including arts and design (75%), entertainment (55%), construction (52%), and transportation (35%), which includes ~900k Uber drivers.
There is also an opportunity to establish ancillary services and infrastructure for the P2P insurance ecosystem, including escrow services, member management software, user acquisition tools, comparison marketplaces, administration services, data management, and social networking tools.
Currently, the P2P insurance landscape in the U.S. is characterized by one dominant player: Lemonade. The company was founded in April 2015 and provides P2P home and renters insurance in 20 states. One of the biggest hurdles for Lemonade, and likely for any would-be P2P income protection players, has been heavy regulation of the insurance industry at the state level. While most jurisdictions in which P2P models have been gaining traction have a single insurance regulatory body across the country, in the US, each state regulates insurance independently within its boundaries.
So while a nationwide rollout may be cumbersome, the companies willing to invest the effort may be rewarded with minimal competition.