In recent years, technological innovations across sectors have changed business operations and consumer expectations. When it comes to insurance solutions, data and technology are reinventing the way they are developed, priced, and distributed.
Transparency, quality, and speed are considered the pillars of customer satisfaction in the insurance segment. Here’s how these three elements are enhanced by the emerging trend of on-demand platforms in the insurance sector.
What Is On-Demand Insurance and Why Is It Important?
Instant order fulfillment has become the norm in e-commerce, retail, and even grocery shopping. On-demand insurance offers similar functionality by enabling customers to purchase insurance coverage and turn it on or off whenever they want. There is no need for middlemen or brokers, lengthy forms, and long-term contracts. On-demand insurance not only offers flexibility in terms of pricing, length, and coverage, but the policies are priced lower when compared to traditional insurance.
Adaptive pricing based on usage or features provides flexibility that the insurance customer has never seen before. Moreover, seamless customer journeys for premium payment and claims filing are positioning on-demand insurance as an innovative lifestyle choice.
Common examples are customers who insurehome or office equipment for a short periodwhen hosting Airbnb guests or customers who buy auto insurance only when they are driving. The ability to insure assets only when they are actively at risk is driving tremendous interest toward on-demand insurance.
The Compelling Case for On-Demand Insurance
This insurance solution is becoming increasingly popular due to the convenience and flexibility it offers. Here are a few reasons why this solution is here to stay.
- Customer Appeal
Modern customers expect a seamless and personalized experience while buying insurance. They want simple transactions that can be completed over an app without any paperwork. Insurers are responding to this need by offering on-demand insurance through platform-agnostic apps with an attractive and simplified interface.
- Affordable Premiums
Traditional insurance is perceived as expensive, inflexible, and unnecessary, especially by millennials. On-demand insurance solves this problem by enabling customers to pay for insurance only when their assets are at risk. This reduces premiums substantially and customers feel reassured that they are paying a fair price for insurance only when they need it.
- Technology Development
The rise of technology that can track real-time activities is encouraging on-demand insurance. For instance, GPS-enabled smartphones, fitness trackers, smart home devices, and more, can help develop custom premiums, claims, and risk assessments. This leads to the personalization of insurance through flexible offers and dynamic pricing. Customer behavior and preferences can be given the importance they deserve, and the automation of repetitive tasks can also improve the profitability of insurers.
The Risks of On-Demand Insurance
At present, for on-demand insurance to become a mainstream service, the ecosystem of regulators, insurers, and startups must work together. They must address the challenges of legacy infrastructure and ensure that customer protection remains at the forefront. And as with any new industry, new risks can also be expected.
- Fraudulent Claims
With the ability to easily turn coverage on or off over a smartphone, the possibility of fraudulent claims is real. Customers may turn the insurance on after damages have occurred. Therefore, insurers must approach risk evaluation in a transparent and efficient manner.
- Expensive
Flexible insurance policies can actually turn out to be more expensive for customers who need coverage for a year. They may soon discover that annual plans are more affordable and practical, especially if they have wider insurance needs. Customers with higher risk profiles will also find on-demand insurance to be more expensive. Some customers may find themselves burdened with ‘insurance management’ or the fear of revealing their poor risk profiles.
- Lowered Revenue
Insurers may face lower profitability if all customers started using coverage infrequently. Annual policies are more attractive to insurers as premiums are higher and risks are lower. While on-demand insurance can generate a higher profit margin, its volume determines the impact on the insurer’s revenue. Insurers will have to reserve more capital for this type of insurance, thus, leaving them with less working capital.
- Improved Marketing
The insurance landscape is highly competitive. Gaining market share and visibility requires expensive marketing efforts. Insurers must be convinced of the impact of on-demand insurance on their profitability before embarking on expensive marketing and advertising campaigns to create awareness and adoption of this solution.
Conclusion
While insurers are leveraging digital channels to offer on-demand protection to customers, the jury is still out on the feasibility of this insurance solution. Insurers are embracing innovative technologies to cater to modern customers. But the adoption and success of on-demand insurance arestill in anascent phase. It will not replace traditional insurance anytime soon; instead, it will complement traditional insurance in specific sectors and geographies.
