When was the last time you got an annual travel ticket? If we have learnt one thing over the past year, it is that we have to be prepared for anything to happen. Due to the ever-changing rules around coronavirus restrictions, local lockdowns, and government direction for employees to work from home, it is no longer appropriate for us to buy a monthly or annual travel ticket: we don’t even know how often we’ll actually head into the office.
It’s a similar story in insurance. Covid has created a great deal of uncertainty, whether economic, logistical or just in everyday life, and that is affecting demand. Take travel insurance, for example. Someone may book a flight abroad, but if their destination is removed from the government’s safe travel list, they may be required to quarantine or self-isolate on their return. That trip may now be untenable: they decide not to go, and no longer need their travel insurance.
What about car insurance? During a lockdown, you can’t drive far, or if you’re working from home, you won’t drive to the office. Now, that annual car policy will feel expensive and unnecessary – customers simply won’t want insurance, because their car is parked in their garage doing nothing.
On the other hand, people might need more insurance right now more than ever. Part of their home may be serving as their office, so they may need additional work insurance. Or they may be driving more often, because they’re concerned about using public transport or ride shares and want to minimise contact with other people.
Clearly, there is a growing demand for more flexible insurance that adapts to the changing realities of the post-pandemic environment. A few companies started addressing this need even before the pandemic as they spotted this growing market demand.
Insurance start-ups like Trov, Metromile and Cuvva sprung up to serve the growing market for on-demand insurance. These providers allow people to buy insurance in smaller increments than the typical annual premium, enabling customers to pay on a per-use basis by letting them switch insurance on and off using an app. These customers only want to pay for insurance when they actually need it: whether that’s insuring an expensive camera only when they take it out of storage, or insuring their car per mile they drive, rather than when it’s parked doing nothing.
In the same way that consumers use subscription services like Netflix and Spotify for their entertainment, so too do they want their insurance to be more flexible, mobile and on-demand. The coronavirus pandemic served to accelerate this growing preference.
This trend is not limited to millennials or Gen Z; it cuts across generations: tech-savvy consumers who are mobile-friendly enjoy the empowerment they feel controlling their subscriptions through an app. 2
So how is the traditional insurance industry responding to this new preference?
Companies in this industry are decades or even hundreds of years old. They have legacy systems and investments in place that cannot be easily discarded, so switching their business model to cater to a new audience is extremely challenging. There are two reasons for this.
First, they are geared towards the annual premium model of insurance. Using historical data, their products are designed by calculating the risk and probability of an accident over a finite period – typically a year. Without a finite period, you can’t calculate the risk over time; you simply can’t calculate the probability of an accident per second, it has to be over a certain duration, and that tends to be an annual period.
As a result, all of an insurance company’s decisions on what premium to charge and how much solvency and regulatory capital to keep, as well as how big the claims pool needs to be to pay for accidents, is based on the annual premium. Their IT and software systems, as well as their finance and accounting methods, simply aren’t able to offer on-demand insurance over short time frames.
Second, while the market segment that wants on-demand insurance is growing, it is not the vast majority of consumers. Plus, even when people want on-demand car or travel insurance, they will likely buy other policies on an annual basis, such as home and contents.
So how can we bridge the gap between traditional insurance and the market’s demand for flexible insurance?
At PremFina, we have the answer. We have designed an app to provide insurance finance as a service (iFaaS). This white-label solution caters to the industry’s demand for an annual premium using our financing, while satisfying the market appetite for on-demand, variable insurance.
It works by offering users monthly subscriptions to different insurance channels. For instance, imagine you need to insure your vehicle and all you had to do to make that happen is go to the car insurance channel on your app – a bit like searching for a channel on Netflix – and activate it. The following month, if you needed to add your partner as a named driver, you could add their details through the app and their premium would adjust accordingly.
Similarly, with travel or home insurance, instead of buying an annual premium, you could find those channels and activate them. If you don’t need to be insured, you could unsubscribe, and your premium would drop.
Of course, there is nuance to the app. For instance, if the user is making several trips a year, the app will alert them that it is better to keep their travel insurance channel switched on all the time rather than switching it on and off. See more at https://premfina.com/on-demand/. 3
It works because the insurance companies still calculate the risk on an annual basis, which PremFina finances upfront. The customer instead pays on a monthly subscription basis, for a suite of on-demand services. The new form of insurance delivery is designed to work with MGAs, brokers and insurers.
The advantage of iFaaS is that it caters to the market by having a monthly, app-enabled, channel-based subscription model, but doesn’t require the extensive infrastructure that insurers have built over many years to be discarded or usurped. It’s an elegant way to serve the needs of both, at a time when flexibility has become a defacto way of living and working post Covid.
Aside from addressing an outmoded logic of paying upfront for an annual travel ticket to get you to and from work every day, PremFina gives customers a one-way ticket to a better, more flexible insurance that adapts to your lifestyle and works with you, not against you.
– Bundeep Singh Rangar, CEO PremFina