Written by As customers’ requirements grow and they gain a better understanding of this type of coverage, the popularity of on-demand insurance is destined to grow.
The traditional length of an insurance period is changing as customers’ needs and demands are starting to focus on not only more flexible and accessible insurance policies but also ones that last for a shorter period. , The days of long-term, one-to-ten-year insurance policies are waning as so called on-demand insurance policies offer policyholders the full flexibility of turning their coverage on and off, activating the insurance policy only when needed and wanted, and paying for it accordingly. The duration flexibility of on-demand insurance allows for something as small as hourly insurance, making it difficult for insurers to estimate the duration of the contract. Not only that, buying on-and-off insurance also leads to micro-durations and small premium amounts.
In general, consumers opt to buy on-demand insurance at a particular moment when that insurance is needed and only for the duration it is required for. It is connected to specific and higher risks because of a certain activity or type of ownership.
On-demand vs. micro-insurances: knowing the difference
As the main specifics of on-demand insurance are low premiums and a short duration it can often be connected to micro-insurances. However, there is quite a significant difference between the two. Where on-demand insurance addresses the needs of a highly digital and active population always in search of individualization, micro-insurances are focused on low-income segments where the premium payment is preferably done in installments.
As an example, take a customer who works in the gig economy. This person usually uses their vehicle for both personal and business purposes. The major problem here is that the customer’s insurance policy needs are different depending on when and how they are using their vehicle. This means that the customer needs to purchase two insurance policies, driving his insurance costs sky high. The same problem occurs for people who rent their homes on Airbnb. Their normal household policy does not cover damages that occur when the property is used on a commercial basis. This forces them to buy two insurance policies, increasing their costs due to very expensive insurance premiums.
Why does this happen? Well, in both mentioned cases insurance policies are being sold on a yearly basis. Hence, even in the case of the person who is renting out their flat or house for only 20 days a year, they still have to pay for insurance for the whole year. On-demand insurance provides the perfect solution to the problem as it enables the customer to purchase insurance coverage only for the time it is needed. It satisfies the high requirements customers have when purchasing insurance: It can be purchased whenever and wherever you want; it is fully digital; it allows you to pay for the policy only when you need it; the policy conclusion is quick and easy; and the pricing is variable, and the terms are fixed.
These days, the usage and popularity of on-demand insurance is limited: according to KPMG, it makes up less than 1% of the global market. However, that doesn’t mean we shouldn’t dismiss it out of hand. As customers’ requirements grow and they gain a better understanding of this type of coverage, the popularity of on-demand insurance is destined to grow.
Sources:
https://www.tcs.com/content/dam/global-tcs/en/pdfs/insights/whitepapers/rise-of-on-demand-insurance.pdf
https://www.the-digital-insurer.com/insurtech-insights/on-demand-insurance/
https://content.naic.org/cipr-topics/demand-insurance
https://www.experian.com/blogs/ask-experian/what-is-on-demand-insurance/
https://www.managementstudyguide.com/on-demand-insurance.htm
https://link.springer.com/article/10.1057/s41288-022-00265-7
Alma Ribanovic
Group Practice Leader Affinity
T +43 664 962 40 17
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