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What is On-Demand Insurance? A Primer

Apr 05, 2019 | 1 year ago | Read Time: 3 minutes | By iKnowledge Team

On-Demand Insurance

On-demand insurance policies are creating a buzz in the constantly changing insurance industry and refer to any form of insurance policies that can be bought online without having to interact with any broker or company salesperson.

On-demand insurance is merely one of the ways the digital revolution is disrupting the insurance sector everyday. At the very basic level on-demand insurance refers to any form of insurance policies that can be bought online without having to interact with any broker or company salesperson. On-demand insurance follows a very simple procedure whereby customers can use a mobile or web application to buy insurance as required for personal belongings, home, travel as well as even by-the-mile car insurance. Applying for such insurance is also much quicker as applications can be improved quickly.

With lucrative features such as faster application process, lesser underwriting costs, and almost no logistical costs, market experts state on-demand insurance will be the next wave to shake up the already changing insurance industry.

What are the Advantages of On-Demand Insurance?

A market research report[1] produced by consulting firm KPMG entitled, “Will on-demand insurance become mainstream?,” highlights that on-demand insurance is attractive for customers as it provides the convenience of an easy-to-use customer interface along with the option of having flexible cover. Due to the structure of insurance products offered by such firms customers feel confident that they are only paying for coverage when it is actually required. The report goes on to highlight that due to the inflow of sensors and other technologically advanced devices, along with the intrusion of machine learning algorithms, the process of buying on-demand insurance has become even more simplified, making customers more confident about its prospects.

What are the Challenges before On-Demand Insurance becomes Mainstream?

For the insurer, there are several challenges that will need to be resolved before on-demand insurance policies become the norm, including having increased risk exposure as well as overall premium payment and feasibility. Due to on-demand insurance products’ features, customers can turn insurance on and off as per their needs, increasing the risk of frauds. An extensive technological model will have to be developed by insurers to ensure that customers are not merely switching on their insurance when they want to make a claim. Similarly, as premiums will only be paid occasionally, as compared to traditional insurance policy, customers will be paying much less to companies, which will further reduce their profitability.

Furthermore, for customers, a great barrier to on-demand insurance becoming mainstream is the general lack of awareness about such products and how they work. Extensive and wide-reaching marketing campaigns on digital and other platforms will be required to convince current customers to switch from their current policies to this new form of insurance. As per the KPMG report about on-demand insurance policies, a combination of marketing techniques, including social media, word of mouth, and conventional advertising such as television and newspaper adverts will have to be employed by insurers to help bring such policies into the limelight. Such campaigns are likely to be very expensive, thereby, posing as a hindrance to the popularity of on-demand policies as well as insurers ability to sell them.

What does this mean for the Future of the Insurance Industry?

Due to these limitations one thing is clear, while on-demand insurance products may not be the default go to, the on-demand model will become one of the most important insurance models. Even term insurance plans such as the iTerm Plus insurance plan by Aegon Life offers a wide variety of coverage, including protection against 36 critical illnesses, accidental death benefit, lower premium rates for females and non-smokers, have an online application service, whereby, customers can get a quote for their policy within minutes. Under the iTerm Plus plan, customers have the option to increase coverage as their family expands and grows while still being able to avail the tax benefits of paying term insurance premium.

While traditional policies currently dominate the market, the changing nature of the industry will ensure that digital models such as those of the on-demand insurance model become an increasingly important part of the industry.



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