Has Insurance Become Too On-Demand?

The "customer-centric" concept isn't wrong, but anything “centric” requires a balance. Has the pendulum swung past the point of effectiveness? 

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Many new entrepreneurs or those in the gig economy consider on-demand insurance the greatest invention since sliced bread. And insurtech companies couldn’t be happier. Here’s why: In the wake of society relying more on smartphones, apps or other popular technologies, consumers now expect buying insurance to involve a similar user experience as when shopping on Amazon. 

Thus, on-demand insurance was born when technology and insurance merged. Consumers can shop and purchase policies online without the help of an insurance broker or agent. For example, with only a few clicks on their smartphone, a new founder can acquire a general liability or an errors and omissions policy lickety-split.

Many insurtechs provide on-demand insurance in some form, like Thimble with its short-term policies for freelancers. Others, like Pie Insurance, narrow the scope by focusing on pay-as-you-go workers’ compensation coverage, while Metromile provides pay-as-you-go auto insurance.

Commercial insurance brokers are also modernizing with on-demand insurance, using mobile apps to connect with clients. In fact, here at Founder Shield, clients can submit vital documents for renewals or claims, make payments or even invite collaborators to the policy. Although insurance is usually pegged as an antiquated industry, it’s transforming quickly — maybe too quickly.

How AI and Machine Learning Affect Insurance 

Before picking apart the industry for embracing change, it’s worth reviewing how the shift unfolds. And underwriting has played a significant role. It’s old news that artificial intelligence (AI) and machine learning have influenced the job of underwriting. That said, innovative technologies like AI and machine learning hope to shift the insurance industry from its current state of “detect and repair” to “predict and prevent” — a concept that merits a closer look.

Historically, traditional underwriting required real humans to evaluate business risks, methodically combing through them, threat by threat. Now, automated underwriting is a tech-enabled process using algorithms to make more accurate decisions. This approach streamlines risk management for thriving 21st-century businesses.  

Still, we would do well to remember the not-so-distant past. Here’s why:

Insurance could qualify as being “too on-demand.” We’ve witnessed some of insurtech’s efficiencies, namely automated underwriting, cause complications regarding coverage and scalability. While these streamlined solutions are ideal for more vanilla risk or smaller companies, the accessibility of securing on-demand coverage has bled into more complicated risk profiles that require a professional touch (i.e., fintech, crypto, etc.). 

See also: The Rise of AI: a Double-Edged Sword

Why On-Demand Presents Unique (and Overlooked) Risks

Very few would argue that on-demand insurance is a step in the wrong direction; it’s not. It’s been a game-changer for plenty of folks. However, we must consider that such innovative processes come with their own set of risks. 

Let’s look at the primary and two-fold risk: adequate coverage. For one, tech-dependent brokers don’t consistently provide proper guidance to clients regarding what to apply for. Next, these brokers leave clients guessing how to structure their coverage or classify the business. 

We’ve heard about consumers making important insurance decisions alone, with little to no guidance from their broker, often resulting in significant coverage gaps. As you may have guessed, this approach usually leads to claim denials or gray areas in coverage applicability. Of course it does! Clients can now change vital coverages, including limits and deductibles — all details that an insurance-savvy individual should tackle.   

Furthermore, automated underwriting can create additional scalability issues as more significant risks are underwritten in line with lower-risk businesses. Once a human underwriter sees what slipped through the system, they quickly non-renew or increase rates exponentially to match the actual risk.  

Viable On-Demand Insurance Solutions

The insurance industry understands that clients want differing levels of attention from their brokers, redefining the role of a commercial insurance broker to an extent. Some require one-on-one attention, while others would handle insurance tasks using an app instead. Still, most clients have come to expect quick responses from their insurance carriers. Plus, some underwriting data is quantitative, so most carriers rely partially on the automated version.  

We should expect continued advancement of automated underwriting among legacy players and insurtech companies. That said, most life insurance companies have relied on these digital processes. Commercial lines will also likely grow more heavily reliant on automated underwriting, supporting the notion of “predict and prevent.” 

At the end of the day, on-demand or automated insurance solutions have a place in this industry. Still, we must recognize limitations where clients, brokers and underwriters acknowledge the need for professional attention and expertise. Teaming the human experience with technology is doable — but only when the two forces accept the other’s strengths and weaknesses for what they are.

Justin Kozak

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Justin Kozak

Justin Kozak is executive vice president, sales, at Founder Shield.

After starting his career at Hub, with nearly a decade of experience in the risk management space, he joined Founder Shield to take on the challenge of structuring insurance solutions for emerging industries. He’s built several bespoke insurance programs for the mobility, delivery and private equity/venture capital spaces. Along with servicing Founder Shield’s unique clients, Kozak manages the team of new business account executives, supporting all new clients and partners joining the Founder Shield network.

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