In my previous blog I focused on how a particular field of technology (Artificial Intelligence) was starting to transform insurance. In this blog, I am looking at a different innovative approach to insurance: ‘on-demand insurance’. This perceived flexible approach to insurance allows policyholders to activate, amend or pause their insurance coverage at the swipe of a finger, a popular approach for millennials and macro insurance.
Trov, Metromile, Slice and Cuvva are now well-known among traditional insurance circles, making significant inroads into the market and driving up on-demand insurance. The idea of pay-as-you-go insurance sounds both novel and appealing: only pay for the coverage you want, and only when you think you need it – a massive appeal to customers. This appeal has not gone unnoticed, levels of investment are impressive. Accenture’s analysis of InsurTech funding data from CB Insights and other sources suggests that more than $100m has been poured into the on-demand segment since 2012. In fact, Trov alone has received more than $85m worth of investment.
Traditionally, insurers have always factored in “usage” into the pricing of policies, a nod to the on-demand consideration. However, what’s genuinely revolutionary about the new on-demand providers is the level of accuracy with which personal usage can be determined, and the sheer convenience and immediacy of control it places in the hands of the customer. Just upgraded your smartphone? Just click on a picture of the new model and it’s automatically added to your policy. Need to borrow a friend’s car for a few hours? Simply take a photo of his number-plate and you’re good to go. These are simple customer journeys, free from many of the traditional pain points associated with buying insurance.
What the insurance market is wanting to know is: Will the availability of these new, on-demand services result in a large fall in overall premiums (as people reduce their personal consumption of insurance), or will it create additional, fresh demand from people who wouldn’t previously have bothered obtaining cover?
For example, if we take travel insurance it’s typically only worth buying an annual policy if you plan to undertake two or more foreign holidays per year, but many annual policyholders routinely fall short of that threshold. They would often be financially better off buying a single-trip policy. But they persist with the annual cover, partly out of habit, partly because they yearn to go abroad more often, and partly because buying travel insurance on multiple separate occasions represents a lot of time and hassle. So, the availability of on-demand flight and baggage cover from the likes of Sure might help some of those people reduce their annual insurance spend. But, on the other hand, there are also a worryingly large number of travelers who fly abroad with no insurance whatsoever; and many of those might be persuaded to spend 20 seconds enabling cover as they walk through the airport.
There’s clearly a strong argument that making things easier for people to buy will encourage them to buy them. Think of the ‘1-Click’ purchasing options offered by Amazon and other retailers; at times these functionalities make it almost too easy to spend money. And the app-centric nature of these new insurance offerings mean that cover is more accessible than ever before. And let’s not forget that many of the insurance products being offered ‘on-demand’ represent a good fit for relatively new and sporadic insurable activities – like temporary insurance for Airbnb hosts, for example.
However, I do have a fundamental concern around an individuals’ ability to judge whether or not they need to be covered at a particular time, or for a particular event. After all, most of us purchase insurance policies in the hope that we’ll never actually need to use them, so logically there seems ample scope for allowing ourselves to become underinsured.
Millennials will dictate the insurance customer experience for the next 3 decades. Millennials do not like buying products that they do not see the immediate benefit of, nor do they like being locked into a 12 month commitment, without flexibility. Millennials like simplified customer journeys, they like flexibility and freedom of choice on what they buy and they are true digital natives. As a result, I expect the on-demand insurance market to continue to grow significantly.