Will On-Demand Insurance Change the Way We Buy Coverage?
On-demand insurance is unlikely to replace traditional coverage, but it can be a useful way to fill gaps in coverage.
The on-demand economy is upon us. Want a ride to the airport? Just pull out your smartphone, tap the Uber app, and a driver will pick you up within 5 to 10 minutes. Need a place to stay for the night? Airbnb has hundreds of options available – all just a quick Uber ride away.
On-demand offerings have quickly revolutionized and disrupted many industries. Hospitality will never be the same now that Airbnb has made conveniently located accommodations with charm and personality available at an affordable price. Taxi drivers around the world despise Uber for undercutting their business. With the advent of financial technology (FinTech), nearly every industry will soon be transformed by the on-demand economy.
The insurance industry is no different. Many insurance startups have incorporated FinTech and on-demand offerings to quickly scoop up a slice of the enormous insurance market and there will surely be many more following suit (for more interesting industry developments, see 5 Ways New Technology Will Change the Way You Buy Insurance).
While there is a lot of coverage about these companies and excitement about the technology they're using, one question often gets overlooked: is this what’s best for the insurance industry and its consumers?
The Flaws of FinTech in the Insurance Industry
While there’s no doubt we’ll be seeing more on-demand insurance offerings within the coming years, many industry insiders are quite skeptical of the benefits for insurers and consumers. Just because the on-demand economy has given us ride-sharing and convenient accommodations doesn't mean it's also the right vehicle for insurance offerings.
Here are a few flaws with on-demand insurance.
Who will purchase on-demand insurance? Someone who is about to be in dire need of coverage. You won’t be insuring your laptop on-demand when it’s sitting in your bedroom safely, but you would when traveling half-way around the world to stay in an Airbnb apartment with five other people.
With on-demand insurance mostly being purchased to cover high insurance risks, the costs will skyrocket and many traditional consumers will be turned off by the offerings.
Many customers will find the increased access insurance companies require to offer on-demand, usage-based offerings too invasive.
For example, auto insurers can place a device in your car to monitor your driving habits and how many miles you drive (see An Intro to Usage-Based Insurance and Telematics to learn more). Many people aren't fond of tracking devices or feeling watched and may prefer more traditional insurance options.
While only insuring against events that are likely to happen is appealing to penny-pinchers, it doesn't provide comprehensive coverage.
Full-scope insurance policies are a little pricier but they offer the coverage required to protect you from nearly anything. On-demand insurance's promise of ultra-specialization and fine-grained customization may well leave many policyholders with huge coverage gaps that could lead to financial ruin.
On-Demand Insurance Is Here
While some skepticism about on-demand insurance and pay as you go coverage is warranted, there’s no denying that new offerings are here. You can already buy certain insurance coverage on-demand, and the trend shows no signs of slowing down.
Major insurance companies have already begun incorporating FinTech and offering on-demand options. Startups have been creeping up with unique insurance offerings and apps for the last five years.
Many of these companies have been successful in garnering a small share of the market. This will continue for decades to come and, while insurers aren't there yet, there’s a chance the industry will shift to an app-focused one, where much of the coverage is sold through smartphones.
For now, let’s take a look at three companies who have incorporated on-demand into their coverage offerings.
Three On-Demand Insurers
As one of the original insurance startups, Trov offers insurance to protect whatever you want for however long you desire. There's no need to go over policy options with an agent; you can get coverage right from your smartphone.
Let's say you want to get coverage for your laptop. All you have to do is enter the item into the app, swipe the item, and choose the pricing and deductible you desire. Once your coverage is in place, all payments are set up automatically through your smartphone – including premiums and bills.
The app has taken off in Australia, and it will soon be available in the United Kingdom and the United States. With investors pouring money into Trov, many speculate the app could change the whole industry within just five years.
Sure is an app that offers life insurance policies for the duration of a flight. Your baggage is also covered with any of the company’s offerings. You just download the company’s app and you can get coverage while standing at the gate. It’s that simple (if you're planning to be gone for a while, see Expatriate Insurance or Travel Insurance: Which Is Right for Your Long-Term Trip Abroad).
Coverage starts at $5 and goes up from there. While many airlines offer baggage coverage and more, Sure’s policies pay out much faster and require less documentation than outdated baggage claim procedures from major airline carriers.
Some are skeptical of the app’s usefulness, but customers seem to enjoy the extra peace of mind these micro policies offer. No one likes to deal with lost baggage while traveling, and Sure fixes this problem.
Metromile is an insurance company that offers pay-as-you-drive options tailor-made for individuals in major cities who don't drive very often. The coverage is now available in eight states, including Illinois.
Many have noticed significant savings when changing to Metromile, as many major insurance company coverages start at 1,500 miles per month. Individuals who drive less than that are being overcharged.
With Metromile, these people see significant savings when switching. The trade-off is having a tracking device in your car at all times, but many agree that’s worth the lower monthly cost. If you live outside their coverage areas, it may be coming your way soon – the company has numerous investors and seems to be expanding rapidly.
Will On-Demand Insurance Change the Way We Buy Coverage?
On-demand insurance and new apps have already changed the way we buy insurance. The trend isn’t slowing down anytime soon, especially since major carriers like Allstate have begun developing apps and filing patents for new coverage options.
For insurers and customers alike, FinTech and on-demand offerings are here. While they might not fully replace traditional offerings any time soon, the new on-demand coverage can be useful for filling gaps in coverage.