The future is on-demand. The way we access services like taxis and purchase our groceries and pizzas has changed forever – and the on-demand economy is now exploding, expected to reach $335 billion by 2025, according to PwC research.
Our research has found that the number of hours that Americans are driving for on-demand economy apps has increased significantly over the past year. A majority of drivers (73%) say they are driving longer hours than just a year before – with 44% saying their driving hours have at least doubled. Yet, there’s still slow progress toward building suitable commercial auto insurance products and services for the drivers fueling this economy.
For on-demand economy apps, drivers in the U.S. may require additional insurance – which varies between rideshare and delivery, as well as by state regulations, meaning traditional insurance policies can struggle to satisfy the needs of individual drivers. Very often, the buying experience for commercial auto insurance is not in line with modern day experiences. Drivers who need to apply for commercial auto insurance often have to visit a brick-and-mortar store with a broker, who then submits the application to the underwriters at the carrier. Getting insurance can take days, meaning the driver is forced to stop working and earning.
Apps such as Uber, Lyft, Amazon Flex, and DoorDash have already made the purchasing experience for customers almost seamless, with embedded payments and transactions. However, we also need to cater to those who are driving the on-demand economy – the drivers.
Just over a quarter of drivers (26%) told us they believe that on-demand platforms should make efforts to offer better pricing for insurance to their drivers, and 25% say the platforms should also offer advice and assistance when drivers are buying insurance.
For the on-demand economy to continue to flourish, on-demand drivers must have the right insurance products to match their on-demand driver needs – and yet their purchasing and claims experiences are often the complete opposite to those of consumers.
What do do?
The answer is to embed insurance into the apps and work with insurance partners to develop products for on-demand drivers. Insurance companies need to start using data from these new sources, particularly from the platforms for delivery or trip data, alongside claims and other proprietary datasets relevant to the on-demand driver, such as speed, incidents, driving ability, and safety. Insurers must also use technology to complement their industry experience.
Why Embed Insurance for the On-Demand Economy?
While embedded insurance has become a popular concept for consumers, who now often tag on protection at the point of purchase for items like concert tickets, travel, health, and car hire, the commercial auto insurance industry is just starting to realize the benefits.
By purchasing insurance products and making claims via apps linked to on-demand platforms like Uber and Amazon, drivers can receive a seamless, frictionless experience that quickly matches them to the appropriate coverage for the type of work they do (transportation or courier, for example), factoring in a myriad of data points, including duration and location.
Effectively, embedded insurance eliminates the need for drivers to go through additional manual steps or fill out complex forms to obtain auto insurance, as all the data is collated from the platform or app. Platforms offer insurers a direct link to the driver, sharing data that enables better underwriting, leading to improved loss ratio and competitively priced insurance products. Drivers are not only matched to appropriate insurance but also covered for risks they didn't realize they needed to insure.
As a result, drivers can simply ‘tap and drive’ with the confidence that they are comprehensively protected at the right price. The outcome is drivers getting more suitable products; platforms having more content drivers; and insurers getting better underwriting results, making it a win-win-win for all three: the platform, the driver, and the insurer.
See also: The Challenges of Embedded Insurance
Driving Innovation Through Partnerships
On the face of it, this sounds simple – but embedded commercial auto insurance for the on-demand driver requires a specialist skillset and deep knowledge of both insurance and technology. The two cannot work independently of each other. Capacity and reinsurance companies need to see proof that their partners understand the complexity of commercial auto insurance.
On-demand platforms provide insurance companies with a novel opportunity. The amount of data they produce creates an opportunity for insurance companies to assess risk in different ways and create new pricing models for potentially better results.
This data is extremely important when underwriting policies, especially in a country as complex as the U.S., with state, city, and even federal regulations. With many insurtechs focusing on the technology and not fully understanding the insurance element, loss ratios have taken an unprecedented hit, and capacity and reinsurance partners have become wary.
For the insurance industry to truly meet the needs of its drivers and partners, it must successfully combine tech and data innovations with insurance incumbents’ decades-long expertise and partnerships with platforms like Uber and Amazon. This approach creates a symbiotic relationship among the platform, the insurer, and the insured (driver), meaning on-demand products can be developed, such as Amazon’s embedded wallet solution, Pay-as-you-Flex. Thanks to the embedded partnership with the platform, coupled with the quick capture of the market, the unit economics are extremely positive. A wallet solution like Pay-as-you-Flex ensures that drivers, platform, and capacity partners have peace of mind that the right policies are delivered at the right price.
Embedded partners can help insurers to gather bespoke data about customers’ driving experience automatically. For example, through Amazon we can access information about the shifts that customers are driving for Amazon, enabling us to combine claims data, inferred location data, and information provided by the customer to ensure complete coverage, as well as price the risk fairly for all parties.
Combining data from the platform, from claims, and from other proprietary datasets relevant to the on-demand driver, such as speed, incidents, driving ability, and safety, ensures that coverage is comprehensive and adaptable to the type of work the on-demand driver chooses to do. Embedded insurance offers on-demand auto insurers the opportunity to leverage all this data, including claims information. Claims play a huge role in insurance: By embedding the claims process into the app, insurers can capture even more data for future policies and foster driver loyalty.
Role of AI and Machine Learning
On-demand drivers’ commercial auto insurance requires a myriad of insurance data, including location, weather, vehicle type, how the vehicle is used, where it is parked, miles driven, hours driven, driver history, driver work location, and driver insurance claims. We also use the data from any telematics to assess driver safety and speed, for instance, alongside data from the apps on-demand drivers use. Then we have associated biases that need to be factored in to ensure the technology is supporting the underwriting team to issue fair policies for on-demand drivers and the platforms they use.
In the U.S., many insurance products operate in the admitted space, which essentially means a state’s regulator signs off on your pricing and underwriting. The regulator is generally hesitant to approve "subjective" pricing, which makes it almost impossible to add AI to the pricing side of the equation.
To address this, insurers should focus instead on using machine learning to help refine data models before they’re used in real time. For example, we model our data inside Google Big Query using AutoML as part of our pricing strategy where we can potentially identify pricing factors, such as historical driver behavior, environmental or geographical factors, and seasonal or temporal factors, that we may have not spotted before, as well as identify trends with fraud and higher claims volumes. These insights are analyzed by our actuarial team to allow them to apply their experience to adjust prices and underwriting criteria, as well as remove any biases.
See also: Beyond the Hype on Embedded Insurance
Putting the Focus Back on Drivers’ Needs
Embedded insurance, when deployed effectively, enables drivers to access the exact level of coverage they need to match their work and lifestyles, and helps insurers make sure that coverage is comprehensive and adaptable to the type of work the on-demand driver chooses to do. This helps to mitigate any risk of alienating drivers who have chosen flexibility and financial control over traditional working patterns, as well as delivering insurance products where drivers can easily access them – keeping them on the road and earning.
