On-demand insurance, a profitable model?

What if you could choose to only pay for insurance when your belongings are actually at risk? A modern set of products, known as on-demand insurance, is proposing exactly that.

Let’s dive right in with a relevant use case to demonstrate the principle.

May 2020 – Trov, an 8-year old San Francisco based technology company, claims to be the world’s leading insurance technology platform for protecting our life, work and mobility. They seem to be well on their way to validating that claim, being present in 5 countries and having raised over 100 million USD in funding from companies like Baloise and Munich Re.

Trov originally set out with a set of native solutions: cloud-based single item protection, fleet insurance and enterprise coverage plans. All digital, of course, and most of them on-demand; connected and handled via an intricated and robust set of performant APIs. Today, the target of their offering looks different. Over the course of 2019, Trov closed a white label partnership with Lloyds Banking Group, and since then they have pivoted to white labelling as their principal business focus. To use our favourite acronyms: they pivoted from a B2B and B2C model to a B2B2B and B2B2C model. (try saying that 10 times in a row)

Trov’s white label service can easily be integrated in the customer facing channels of incumbent players, but that’s not the main reason why their approach is attractive. In the end, it’s all about the money. The financial model for on-demand insurance poses an interesting and potentially lucrative challenge. The popularity of this product notwithstanding, it requires a fresh look at the way insurance is handled.

The financial model needs to work

In theory, on-demand insurance implies premiums that are occasionally paid. This, in turn, will mean that the customer is paying less on a yearly basis, in most cases. Ceteris paribus, while attractive to the modern consumer, this results in lower profit margins. Assuming a successful implementation of the technology, the emphasis then shifts to the question: how can we attract a new, additional customer base to reach the scale needed to offset the loss in premium revenue per policy? Solving this question is the only way to offer on-demand insurance and thrive.

The importance of reaching customers on a massive scale is demonstrated by the Trov case. Building a new brand in a B2C environment is very costly and requires substantial capital to succeed. For incumbent players, branding campaigns burn up massive chunks of marketing budget.

In a broader sense, for on-demand insurance to work in a sustainable manner, the ecosystem supporting these products must be carefully and diligently built for growth (the right marketing, customer support, reserve policies). In this aspect, a platform model can prove to be extremely effective. A digital platform connects parties in the value chain; insurers, agents and brokers, external service providers, and the customer; all connected in the glorious flow of exchanging data and products. This sets the stage for more efficient collaboration, insights and growth tactics.

As an insurer, leveraging your existing brand reputation, distribution channels and client base are powerful tools that can supercharge a platform model. Examples of platforms are broker portals, new B2C marketplaces (e.g. for on-demand insurance), or internal solutions sharing knowledge across company silos to push new progress. Thanks to current technology, platforms enable scale in ways that traditional sales channel cannot. We love this topic and could talk about it all day. Want to dive deeper into it? Feel free to reach out and talk to us!