The 3 Pillars of On-Demand Insurance

One of the outcomes of economic and technological changes has been the rise of on-demand insurance products, offered both by insurtech startups and incumbents alike. This includes products with continuous underwriting attributes, microinsurance products and insurance offerings for workers in the gig economy. These offerings aren’t typically grouped together, but they share an on-demand aspect that wasn’t required or technologically possible in the past. Continuous underwriting refers to the use of regularly updated (and possibly real-time) policyholder data to rapidly determine consumer risk and adjust policy terms and prices accordingly, as opposed to traditional term-based updates and renewals. Some forms of continuous underwriting have been around for a long time (example: pay as you go Workers’ Comp, with monthly updates based on submitted payroll) but now has applications to many lines. Microinsurance refers to coverage of smaller risks via rapid underwriting; including on-demand products like travel or event insurance, renters’ insurance broken out for specific high-value household items or pay-per-mile auto coverage. Gig economy insurance is most familiar to those outside the insurance space: as more and more freelance and “gig” opportunities like Uber and Postmates emerge, carriers are developing products to keep these independent contractors covered in a part-personal, part-commercial hybrid coverage. See also: On-Demand Insurance: What’s at Stake   While these three arenas of modern insurance might seem disparate in their final forms, they are emerging today due to a new consumer-focused approach to product definition and the connected technology necessary to allow a real-time approach. This foundation for all of them is built on three pillars: Data: On-demand insurance requires data, if not in real time then something close to it. If insurers are only getting updates as to policyholder risks and scheduled items after an end-of-term audit, then only a traditional approach will work. But as connected technologies and the Internet of Things have created a continuing pipeline of data, a new approach emerges. Insurers now have the ability to tap into discrete data points about coverages times and risks in an automated fashion, including: When is someone driving their car for Uber vs. for personal use? When is a business stocking high amounts of valuable goods? What is monthly payroll for workers’ comp? Product: It’s not enough to have access to the data. Insurers can’t just adjust rates on the fly. Instead, they need to take a consumer-first approach to modeling their insurance product. This means the restructuring and sale of a product with a variable pricing agreement and a flexible term. Done properly, this will allow the insurer to have the most insight into the collective risk and allow the consumer to have a transparent product that covers them for exactly what they need when they need it. Systems: Just because the data is available and the business has rethought the product structures doesn’t mean the infrastructure will be able to support it. On-demand products mean real-time web service calls and at least some component of automated underwriting decisions. Variable rates mean a rating engine that can calculate new rates on the fly based on updated risk info as well as a billing system that can adapt to variable billing amounts and dates. Without flexible and agile core systems, an insurer can’t roll out new products that behave in nontraditional ways. Insurers may be able to make progress with an on-demand offering even if they only have one or two of these pillars. Workers’ comp insurers, for example, have offered pay-as-you-go for a long time via manual form submission. But to make new products viable for a mass audience—and to compete with the consumer-driven ethos of Silicon Valley startups—automated data needs to be simple and convenient to turn on and off. This might take the form of a mobile app with a button to turn a microinsurance product on or off or perhaps the form of an automated data feed to a third-party system like payroll. Conversely, all three pillars are valuable to an insurer even if it hasn’t fully embraced an on-demand approach to their products. See also: Reinsurance: Dying… or in a Golden Age? Real-time data allows an insurer to understand its overall risk profile at any given moment and to make decisions and new sales and renewals. If, for example, you are selling a commercial liability policy and have up-to-date info about a business’ risks, it’s helpful even if individual policy pricing isn’t affected. In fact, this is how automotive telematics typically works: Auto insurers are gathering masses of data that demonstrates real-time risk and driving behavior, but they aren’t using it to do continuous underwriting/rating. Likewise, rethinking a product structure to take a more consumer-focused approach can happen even within the constraints of traditional insurance offerings or without real-time data. And, obviously, having modern and flexible core systems allows new product rollouts, better automation and digital interactions regardless of what products are sold. New insurance products like microinsurance and continuous underwriting aren’t just about gathering data or having a modern core system. Rather, they are based on a multi-faceted approach: understanding risk in a semi-real-time way; selling a different type of product; and having the core systems to handle it.