Co-authored by Judy Cheng and Elisha Corlew.

The on-demand culture has been rapidly growing over the past decade. Groceries, car rides and dinners can all be purchased and promptly delivered with the touch of a button and insurance is catching up. At the 2019 Pinnacle U event, we presented on the topic of on-demand insurance and what its future may hold. We partnered with Noah Sierer, a student from Illinois State University, to provide examples of current insurers and the market’s potential.

On-demand insurance is a form of usage-based insurance (UBI) that often caters to a specific audience: millennials. Millennials are the perfect target audience. They are projected to become the largest generation in the labor force in 2019. They were raised with technology and now they are purchasing their own insurance. Every part of the insurance process (e.g., getting a quote, signing up, filing claims) is done on the user’s personal device and can be completed in just minutes. Users are responsible for turning the coverage on and off whenever they believe they will need it and their monthly premiums are adjusted to how much coverage they requested. For example, insureds can choose to have their laptop covered only when they bring it outside the house by turning on their coverage through the mobile app and switching it off when they return home.

While most UBI startups are still trying to get approved nationwide, several are already available in certain states. Popular examples include Trov, Metromile, Slice and Verifly.

• Trov is a personal product insurer that lets users turn their coverage on and off when they believe they are in a high-risk situation. Products covered include jewelry, electronic devices, bicycles and many more.
• Metromile is a usage-based automobile insurer that charges users an initial low flat rate, followed by a fixed rate for every mile they drive that month. Metromile implements personalized premiums to save money for insureds that drive fewer miles than the average driver.
• Slice provides insurance for ride-sharing drivers and home-sharing hosts. Instead of paying for an annual policy, Slice offers an approach that bases premiums for ride-sharing employees on how many rides they have given or for home-sharing workers on how often they rent out rooms. This is highly beneficial for those working in the sharing economy that drive or host minimally.
• Verifly offers on-demand drone and general liability insurance for its users. Starting at $10/hour, users can get coverage for recreational and commercial drone use anywhere a drone is allowed to fly, covering up to $10M of legal liability for damages to people or property.

On-demand insurance may sound like “the next big thing” for the insurance industry but many companies face obstacles before getting their products on the market. Founders of insurance companies may not necessarily come from an insurance background. Since insurance is regulated at the state level, insurers have to make sure that they follow the rules and laws of each state in which they would like to provide coverage. This obstacle alone makes it very challenging for insurers. Learning and adapting to each state’s rules and regulations can be a very time-consuming task and it can take a great deal of manpower and resources in order to make it happen. The slow approval process is why there are limited availability for insurance products across the United States. One example of this would be Metromile, which was founded in 2011 by two people that did not came from an insurance background. As of early 2019, Metromile’s coverage is only available in eight states.

Furthermore, starting a company is not an easy task; this holds especially true for insurance companies. From funding to manpower, an insurance startup requires a great deal of capital and other resources. An insurance company will also have to decide whether to establish their own admitted carrier or partner with a current admitted insurer. Either choice will have a big impact on the type of business they run or how they can establish themselves in the market with their brand and credibility.

Thanks to its growing popularity, millions of dollars are being invested into on-demand insurance. Established insurance companies have begun making large investments hoping to find “the next big thing” in the insurance market. Another driving force in on-demand insurance is the consumer and their way of life. These days, communication happens without the need to speak. People shop and dine without ever leaving their homes. Such convenience further extends to traveling, transportation and lodging. On-demand insurance utilizes existing technology, like smartphones, to bring convenience to consumers, more than ever before. For example, utilizing a smartphone, every part of the insurance process can be done through applications and text messaging, which saves time and eliminates the hassle that typically comes in purchasing insurance. 

Even after a company establishes itself as an on-demand insurer, issues like insurance fraud remain. Since the insured dictates when they have coverage, fraudulent claims could come from anyone, at any time. In order to combat against this, deductibles are set in place as a deterrent; the insured has to pay their share of expenses before they can be compensated. In addition to fraud, new insurance companies worry about slow growth, as their brand lacks recognition and credibility. There is also the constant threat of competition. Companies need to be alert, innovative and continuously improve their business model to ensure consumers will choose them over another. Earlier this year, Nationwide launched a pay-as-you-go insurance coverage for low-mileage drivers called SmartMiles. They also announced they are partnering with Slice Lab to develop a new UBI coverage for ride-share drivers, like Lyft and Uber drivers. Such established companies with ample resources pose a major threat to current and future insurers that may lack the funding or name recognition.

On-demand insurance is still a fairly new concept to most people. The world is constantly changing, allowing new risks and new insurance opportunities to continue to arise. In this age of technology, insurance companies should implement on-demand features to not only attract new consumers and but maintain their current ones. If an insurer can market themselves in the correct manner and keep track of the shift in consumer demographic and preference, then they can truly have the potential to present themselves as the leader in a new age of insurance.  

Judy Cheng is an actuarial analyst with Pinnacle Actuarial Resources, Inc. in the Bloomington, Illinois office. She holds a Bachelor of Science degree in Actuarial Science from Illinois State University. Judy has experience in assignments involving Loss Reserving, Loss Cost Projections and Group Captives. She is actively pursuing membership in the Casualty Actuarial Society (CAS) through the examination process.

Elisha Corlew is an actuarial analyst with Pinnacle Actuarial Resources, Inc. in the Atlanta, Georgia office. He holds a Bachelor of Science degree in Actuarial Science from Florida State University. He has experience in assignments involving Loss Reserving and Group Captives. Elisha is actively pursuing membership in the Casualty Actuarial Society (CAS) through the examination process.