Forget about typical 12-month insurance policies. These aren’t even your traditionally-shorter 6-month auto policies. The newest trend in insurance is all about instant and fleeting coverage that lets people buy exactly what they need when they need it, and stop paying once they don’t.
The world at your fingertips
In today’s world, we have everything from video, books, and music on demand to grocery delivery that takes as little as two hours from the time you checkout on your phone to when your groceries arrive at the door. Consumers increasingly want and expect to make purchasing decisions on the fly and receive instant access to their products and services.
The insurance industry has been moving more and more toward giving customers “the Amazon experience” with new technology that allows them to shop for insurance on a computer or mobile device and purchase coverage, often without speaking to another human. But generally, the product being bought is still a traditional policy, which lasts 12 months in most cases.
Not anymore! Technology has finally arrived to the point where on-demand insurance can exist. Why pay for insurance on a car you’re not driving? Why purchase an expensive landlord policy for your vacation rental if it’s not occupied 24/7? These are just a couple of examples of how on-demand insurance is an attractive, cost-saving proposition.
What is on-demand insurance?
Just like it sounds, on-demand insurance is a type of insurance product that can be turned off and on at the policyholder’s whim. Thanks to mobile devices, wearable technology, and the Internet of Things (IoT), consumers can connect with insurers to activate and deactivate their policies based on where they are and what they’re doing. This results in a “pay for what you need” experience for the consumer and offers insurance companies the ability to earn more from low-cost, high-volume arrangements.
Types of on-demand insurance
On-demand insurance isn’t entirely new. Travel insurance or trip insurance, for example, has been around since 1864! Many of us are familiar with trip insurance as it’s often sold during the process of booking a plane ticket or vacation package.
To purchase trip insurance, you don’t typically have to complete any paperwork or wait for underwriting approval. You just select the dates you want your policy to start and stop, and pay your premium. In this way, travel insurance has always been on-demand.
The newer, and more high-tech, variations of on-demand insurance include pay-per-mile auto insurance and gig-economy insurance. The biggest difference is that instead of selecting a future date for coverage to become effective and then end, new on-demand insurances activate and deactivate in real-time. Unlike travel insurance, truly on-demand insurance wouldn’t be possible without the technology to instantly stop and start coverage from a smartphone.
On-demand auto insurance
Owning a car is a major expense, and auto insurance can be one of the largest ongoing costs. For people who drive infrequently, the ability to pay for insurance only when they actually need it is a tempting offer.
In the past few years, mobile technology and the IoT have enabled insurers to track with confidence when a policyholder is driving and when they aren’t. This opens up the possibility of on-demand auto insurance that isn’t based on the honor system. In exchange for plugging in a tracking device to your car’s computer, you can have insurance that’s on when you’re driving and off when you’re not. This makes sense for someone who drives infrequently and doesn’t want to be paying to cover a risk that doesn’t exist when their car is sitting in a garage.
Gig economy insurance
With the rise of the gig economy (AirBnB, Uber, Lyft), insurers have had to grapple with how to properly insure risks associated with these jobs or commercial endeavors that are very off-and-on in nature. The insurance policy you need if you’re a taxi driver is different than what you need for personal use of your vehicle; the insurance needs of a landlord are different from those of a private homeowner resident. But how do you get the right coverage for these sometimes scenarios without spending way too much money?
The answer is on-demand insurance for the gig economy. Whether it’s your home, car, or other asset being shared for income, on-demand insurance gives gig workers the ability to activate commercial levels of coverage when they’re using their home or car for work – then go back to being a private user when they’re not.
Risks and pitfalls of on-demand insurance
On-demand insurance sounds great to many consumers. Its ease and convenience really caters to the fast-paced and high-tech way of life we’re all accustomed to. However, it does present some new and different challenges both to consumers and insurers.
On-demand insurance has a unique potential for fraud that doesn’t exist in a traditional policy that’s in effect for 12 months and can’t be started, stopped, and started again on a moment’s notice. A dishonest consumer could hypothetically get into a car accident while driving uninsured and then activate their insurance a minute later before reporting the accident. At the same time, insurers could abuse the system by claiming technical difficulties prevented a policy from activating when it was supposed to, in the case of a loss.
Consumers, insurers, and regulators alike need to be aware of the potential downsides of on-demand insurance. The NAIC has already tasked its Innovation and Technology Task Force with discussing “emerging issues related to insurers or licensees leveraging new technologies to develop products for on-demand insurance purposes-in addition to potential implications on the state-based insurance regulatory structure-including, but not limited to, reviewing new products, cancellations, nonrenewals, coverage issues, notice provisions and policy delivery requirements.”
If that sounds like a tall order, that’s because it is!
There’s no doubt the emergence of on-demand insurance is a developing issue that will bring new regulations to this rule-happy industry. As for us at AgentSync, we’ll continue to follow the developments and keep you updated as on-demand insurance becomes an everyday product.