On-Demand Insurance: How Episodic Coverage Options Affect P&C Carriers?

Insurtech companies are increasingly wooing customers with on-demand, or episodic, insurance models. Easy access, usually via smartphone, gives customers the ability to turn their coverage on or off with one click, tap or swipe — paying for coverage only when they need it. 

This model is increasingly popular with drivers, travelers and gig economy participants, and it’s offered a foothold for insurtech startups that can build the necessary systems to control it. However, the model poses a number of challenges for established insurance companies. 

As insurtech startups continue to find new ways to meet the demand for episodic insurance, established carriers will need to adapt to changing customer preferences and habits. 

The Shift to an On-Demand Insurance World

The rise of the gig economy has driven an increasing demand for insurance products that operate only when the coverage is needed. In a world of two-day shipping and instant streaming, customers seek insurance coverage that operates in the same way, says Matthew Wong, senior research analyst at CB Insights.

Not all P&C coverage is being shaken up by the on-demand model, however. “On-demand insurance provides coverage in areas not historically covered by traditional insurance policies,” says Josh Taub at PropertyCasualty360. 

Instead of competing with traditional insurance, on-demand options focus on covering new risks related to the technological world.

For example, drone and smartphone owners want more agency over these tools and how they use them. This includes the ability to decide when, where, how much and for how long coverage is required, adds Scott Walchek, founding chairman and CEO of Trōv.

“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it’,” says Walchek.

On-demand coverage can also help cover gaps in existing policies. For instance, most established insurance policies don’t cover instances where a rental scooter rider collides with a pedestrian, damages property or causes a car accident. If riders aren’t covered and an accident occurs, they may be on the hook for substantial compensation costs, says Lucian McMahon, senior research specialist for the Insurance Information Institute. 

Episodic insurance, however, could allow scooter users to turn on the coverage they need to fill this gap, take their ride and turn off coverage when finished. Protection in case of an accident is present when scooter users need it. 

New vs. Established: Can P&C Carriers Stick With the Coverage Models They Know?

Many insurtech companies are exploring on-demand coverage in spaces not addressed by established P&C carriers. It can be tempting to ignore these new lines of business and instead focus on established policies and methods — the things P&C insurance companies do best. 

In some cases, this approach makes sense. According to David Miller, vice president at Plexus Personal Insurance, a standard homeowners insurance policy is unlikely to transform to an on-demand model. These models tend to cover risks and losses that can’t be adequately predicted or eliminated, such as fire, flood or theft.

Additionally, most lenders require homeowners insurance as a condition of offering a mortgage, explains Pat Howard at PolicyGenius. In this case, lenders are unlikely to accept coverage that a homeowner can turn on or off at will.

One significant exception to the rule is auto insurance, a traditional P&C product being challenged by on-demand coverage options. For instance, Metromile uses telemetrics to allow customers to pay for coverage only when they’re actually driving, says Tim Parker at Investopedia. 

While established carriers like Progressive pioneered the use of telemetrics to influence premium rates, Metromile has turned this approach into a concrete pay-per-mile method. Auto insurers may find it challenging to keep customers who drive very little, unless they can embrace on-demand options these individuals find appealing.

How Insurtech Startups are Embracing the On-Demand Insurance Model

Some insurtech companies are even competing with one another to open up new variations on episodic coverage within the same space. For example, both Metromile and UK-based Cuvva offer on-demand auto insurance coverage based on actual mileage. Cuvva, however, allows customers to insure themselves to drive any vehicle, for durations as low as a single hour, says Michelle Kerr, associate editor of Risk & Insurance. 

Some companies are so passionate about the promise of on-demand models that they’re offering to help other insurtech startups develop theirs. In 2018, Slice began offering cloud services to help companies develop and market their own on-demand insurance products, says Andrew G. Simpson in Insurance Journal.

Slice’s vision extends beyond insurance and insurtech companies. “We’re renting our digital insurer [infrastructure] to other carriers or other companies that want to be insurers, that want to embed insurance in their products,” says Tim Attia, CEO and cofounder of Slice.

At least one well-known carrier has already embraced such a partnership. In early 2019, Nationwide announced a partnership with Slice in order to improve coverage for rideshare drivers.

“This partnership exemplifies our commitment to innovation by leveraging technology to provide rideshare drivers with a flexible and comprehensive insurance product,” explains Teresa Scharn at Nationwide. 

It also allows each company to bring its own strengths to the table. While Slice offers a forward-thinking platform, Nationwide has a deep understanding of customer behavior and risk analysis. It’s not difficult to imagine a situation in which embedded, on-demand insurance is available for nearly any product or service, becoming the expected norm rather than a new invention. 

What Established Carriers Can Learn from Episodic Insurance

The digital revolution has unlocked three new approaches to insurance that weren’t possible before the era of big data and instantaneous communication. These models include continuous underwriting, microinsurance and gig economy insurance, says Jeff Goldberg, senior vice president at Novarica. While all three may not be present in the same insurance product, they’re all part of how on-demand insurance works today.

All of these approaches require three commitments from insurers: data analysis, consumer-focused product development and system effectiveness, says Goldberg. While insurance companies can make some progress in the on-demand sphere with only one or two of these pillars in place, strong, sustainable growth demands all three. 

Insurtech startups that specialize in episodic coverage typically do so by finding an area that established policies and carriers don’t address. For instance, Slice got its start by addressing coverage gaps for Uber and Lyft drivers that remained even when drivers had both personal auto insurance and coverage through their ride-share company.

Slice succeeded by addressing drivers’ desire to have full auto insurance within the confines of traditional coverage, ride-share policies and state minimum requirements. For both insurtech startups and legacy insurers, leveraging customer interest in on-demand coverage will mean finding these gaps and developing new ways to address them. 

It’s possible to imagine a world where insurance companies compete to cover individual items of personal property, like smartphones and mountain bikes, says Stephen Temple in Insurance Thought Leadership. 

Established insurance companies have access to significantly more information about their customers’ needs, behaviors and risks. Leveraged effectively, this information can help legacy insurers compete by offering coverage that is less granular, yet more personal. 

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