This article was contributed by Deepak Mishra, Avanta Ventures Senior Associate
Digital freelance workers and creators are independent and not classified as W-2 employees. The increased adoption of work-from-home during the COVID-19 pandemic, the Great Resignation, and workforce reduction across many industries are among the reasons for the rise of independent workers in the U.S. While the percentage of independent workers in the U.S. has risen from 27% in 2016 to 36% in 2022, there is a distinct lack of financial products and services that serve them well. Many tools freelancers and creators use to manage their businesses, especially invoice submission and payment collection, are antiquated. They also lack essential benefits like insurance, health savings accounts for medical expenses and access to credit to purchase a home or a car due to inconsistent cash flow or job security.
Incumbent insurers like Chubb, Markel, and Hiscox are beginning to focus on freelancers and creators by offering them insurance products like accident and health, professional liability, and cyber. Chubb recently launched “Blink by Chubb,” offering benefits of up to $2,500/month in case of injury or illness. Allstate recently partnered with Business Talent Group to provide insurance solutions for on-demand consultants covering risk types ranging from liabilities from home offices, damages to business property, and cybersecurity breaches of confidential information. Hiscox partnered with the Freelancers Union to provide professional liability insurance.
Incumbent carriers are partnering more with fintech startups for distribution, especially as new customers like Millennials and Gen Z acquire insurable assets. Partnerships with emerging fintechs can provide insurers with emerging distribution channels to offer tailored insurance products and acquire digital freelancers and creators currently underserved by the insurance market today.
Digital freelancers and creators who work on short-term projects, many of whom are Millennials or Gen Z, often hold graduate degrees and tend to have high credit scores. They usually offer skilled IT, legal, accounting, nursing, or business consulting services. In 2022, nearly 58 million Americans were employed as independent workers. Moreover, 32% or 18 million are high-end workers earning more than $150,000 annually. With the emergence of the decentralized web, the freelancer market is expected to grow as more digital freelancers value flexibility, direct ownership and monetization of their work.
As the high-end freelancer segment grows, legacy financial applications and products still need to be improved. Generic payment methods, legacy technology and manual processes currently dominate the tools and workflow among clients, freelancers, and creators. Moreover, freelancers often don’t have access to the same financial products that employers provide W2 employees, such as insurance, loans and retirement savings plans. While freelancers can join the Freelancers Union, many don’t join the union to access financial products such as insurance.
Fintech innovation serving the freelance worker and employer market
There are many pain points within the existing digital freelancer marketplace that fintech startups, such as Willa, Archie, Flyfin, Moojo, Karat, Oxygen, Catch and Lili, aim to solve. One central pain point freelancers face is not receiving payments from their clients promptly. Over 30% of invoices are paid late, and most clients take up to four weeks to pay freelancers. Most clients have a backlog of invoices pending reconciliation and payment sitting in an Excel spreadsheet. As a result, freelancers often max out on their credit cards, and others use savings to cover monthly costs. Freelancers also spend a lot of time and money on administrative tasks such as scheduling and lead generation to secure clients. Moojo and Willa are helping freelancers and creators with seamless invoice creation while promising immediate payments. These startups also may provide insurance products such as professional liability, business liability, and cyber to ensure that freelancers are adequately protected against missed deadlines, computer and equipment protections, copyright infringement, injury, data privacy and data-rights violations, cyber extortion and more.
Another pain point many digital creators and freelancers face is inadequate insurance offerings tailored to them. Insurtechs, like Coverdash, Thimble, InsureQ and Insify, have entered the market to offer freelancers general and professional liability, such as accident, property damage, personal or advertising injury to a third party and claims resulting in inadequate job performance. Moreover, Revolut – a London-based neo bank currently valued at $33B – recently launched income, payment and expense management for freelancers. They also offer insurance products, including pet, travel, and purchase insurance, which enables Revolut to cross-sell and upsell to a subset of more than 20 million existing retail customers.
Freelancers often need loans and other financial products to operate their businesses effectively. Fintech startups such as Finiata, Oxygen, Aire and Lili offer freelancers alternative credit scores, factoring, debit cards, and other lending products similar to buy-now-pay-later (BNPL) loans. On the gig worker client side, many companies need help managing freelancers. Startups like Archie, Melio, Motil and Catch enable clients to seamlessly onboard and manage independent workers while cross-selling other financial products. Archie helps clients pay freelancers within one click, manage year-end tax filing, and digitally collect the required information they need from freelancers, such as contracts, NDAs, invoices and W-9s.
What does this mean for insurance?
As the digital freelance and creator marketplace expands, insurance companies are uniquely suited to strategically serve this growing customer base primarily in partnership with the scaling fintech and insurtechs. Insurance companies have a unique opportunity to capture new generations of customers like Millennials and Gen Zs, and fintech startups can offer unique distribution channels to reach them. Most of these customers are entering the housing market for the first time later in life (compared to baby boomers). They are often interested in engaging with their insurance providers digitally, which presents a potential opportunity to cross-sell other personal lines products (i.e., pet, motorcycle) in the future. Insurance companies could work with startups in this space with policy, underwriting and white-label product know-how, as well as payment data that could be used as an alternative to credit scores for insurance underwriting and customer segmentation.