Over the last decade, digitisation and individualisation have stimulated the development of on-demand services in many industries. This is certainly true for the insurance industry which has had to find ways to respond by embracing new possibilities on how risks can be insured.
An ever-growing reliance on smartphones, mobile apps, social media and chatbots has impacted both the insurance industry and the consumer – and insurers are feeling the pressure. They must meet the demands of tech-savvy customers who can educate themselves on the go, who want insurers to meet them on their terms and who have a growing awareness of what solutions could be at their disposal by looking at international developments in the industry.
Consumers are changing the way they interact with their products and in a country like South Africa where many people are feeling the financial pinch, they are turning to technology to find ways of making their insurance products work for them.
This is where on-demand or usage-based insurance comes in: a solution that gives consumers the ability to manage their insurance cover on an asset, based on when the asset is in use or at risk – being able to switch their cover on when needed and off when they do not need it.
Using technology – not price – as a differentiator
It is becoming increasingly difficult for insurers to compete on price in a highly saturated market, the value proposition of on-demand insurance rests on its flexibility and unbundling: insurance cover can be purchased for risks as needed, at any time and for as long as necessary.
Here, insurers take a consumer-first approach and offer products that cover consumers for exactly what they need when they need it. Insurance providers are using innovations like the Internet of Things (IoT), artificial intelligence (AI), predictive modelling and big data to help reinvent the way insurance products are created, underwritten, priced and distributed. They use technology as a differentiator to design an easy-to-understand product with variable pricing and flexible terms.
In South Africa, the pandemic gave rise to a new wave of on-demand insurance with several insurers introducing a “pay as you drive” feature. This gave clients a premium discount benefit due to less exposure to the insurer. The same notion applies when considering that not all assets are exposed at the same level for the same period – consider a speedboat, caravan, or even golf clubs that are used periodically, these assets should enjoy comprehensive cover when in use, but one can argue that limited cover could be plausible when the assets are not in use. This approach allows clients a significant reduction in premiums.
With connected technologies and IoT devices such as telematics and wearables, insurance providers can also tap into data about the risk profile of clients in real-time. The data is then used for determining the premium by measuring the extent of usage as well as gauging the risk profile of the insured occasions, for example how a piece of machinery is being used on a farm or how well a driver operates his or her vehicle.
The journey ahead for on-demand insurance in South Africa
Consumers can benefit greatly from on-demand insurance solutions, in particular premium discounts, but this will only be possible through active engagement with their insurance portfolio. Forgetting to switch cover on could lead to a scenario where an asset is not insured or the opposite, where an asset remains insured for an extended period of time causing the accumulation of unnecessary premiums for cover not needed. As the saying goes, “with great reward comes great responsibility”.
Although on-demand insurance in South Africa is still in its exploration phase, insurers will have a greater role to play in adequately educating consumers on their responsibility in managing their on-demand policies. Insurers will also need to create platforms and channels through which consumers can action their on-demand needs – this has a significant impact on operational structures of insurers, especially when the right technology is not in place to allow the consumer to complete the action themselves.
The value of a qualified financial adviser in this evolution of insurance services is immeasurable as they can look at the full picture of a client’s personal and business needs and know when to dial up insurance cover for periods when it is required or dial it down for times when the asset will not be in use. Financial advisory firms who invest in technology that is integrated with insurers are enabled to complete these actions on behalf of their clients.
Consult, which specialises in advisory in the short-term insurance space, has partnered with insurers who offer on-demand insurance solutions and reward clients for managing their insurance risk profiles. The company’s financial advisers are experienced in understanding their clients’ unique needs and crafting tailored insurance solutions through the use of Consult’s in-house platforms. The insurance landscape is ever-changing and you require a partner to navigate the environment, to make the most of the opportunities available.