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August 15 2019 | Karen Pauli

Our digital world has changed many things in a blink of an eye, it seems. I don’t need to remind you. There are tens upon tens of blogs that remind us of all the ways digital has – or sometimes has not – changed the business of insurance. One thing that has not been explored in-depth, however, is product proliferation.

Travel Insurance blogDuring my career, I have led teams that developed products. It was always a very long process. From concept to roll-out, it was usually two years, and sometimes more. Clearly, that time frame is unacceptable in today’s world. But it was more complicated back then due to the manual nature of things. Enter the InsurTechs – many of which have targeted the digital distribution of products and experimented with various business models – and time frames have condensed considerably. Early on, in response to the pressure, InsurTechs (and many primary insurers) pulled out the stops to provide renter’s insurance, and more recently, small business and gig economy products. In all cases, product proliferation ascended to a high art form! Make no mistake – many of these efforts benefit consumers. That is a good thing. However, there are potential downsides. And one relates to some of the experimentation around business models.

The business model in question is on-demand products, specifically the adding and subtracting of coverage at will. At a high level, on-demand does seem to match society’s current state of mind – instant everything! But, does it match the reality of human nature? The most recent case-in-point is travel insurance. Of late, it seems that something new is happening daily in the travel insurance business. It is not lost on too many people that the world is traveling to more and more places with greater frequency. Travel is big business. However, InsurTechs are masters of homing in on specific problem areas, like on-demand lost baggage coverage, on-demand flight delay coverage, or on-demand trip cancellation coverage. These seem to be coming out of the woodwork in significant numbers and generally provide some level of instant claims payment.

On the flip side of the new InsurTech travel offerings is a very entrenched travel insurance business, dominated by major insurers who have 20, 30, or more years of experience understanding traveler needs. Product offerings are diverse and comprehensive. However, they aren’t cheap, and from recent personal experience, the claims process is laborious. Is improvement needed? Yes. But does the business model need to change?

To put this in perspective, picture, if you will, the scenario of booking a bucket list trip to Bali. A few weeks before the trip you acquire on-demand trip cancellation coverage. Then, on the way to the airport in your Uber ride, you acquire on-demand flight delay coverage. And then, sitting at the gate, you get on-demand lost baggage coverage. Life is good. All the things that could make your trip a disaster are covered! But then, while zip-lining through the jungle in Bali, you fall, break a leg, and need surgery. Well, there’s no coverage for that! Life is not so good. An incumbent insurer with more comprehensive coverages may well have saved you from this protection gap.

While there may well be on-demand coverage for zip lining or other adventure activities, there are some basic issues to be thought through. Fundamentally, is isolated and compartmentalized risk management the way to go, or does it leave consumers open to uncovered losses? Do consumers want to get multiple discrete policies to cover their broader exposures or obtain comprehensive insurance? Will consumers ultimately find the effort to add and subtract insurance coverage tedious and simply too much effort? Or what if you forget! The jury is still out on these issues.

Experimentation is absolutely a very good thing. It needs to continue. But before jumping into the topic area du jour and joining the product proliferation game, clearly understand the market you wish to serve. Understand the way customers wish to buy and consume insurance. Maybe the answer really is to change business models or product offerings. But have that answer firmly in hand. And understand what is at risk. In the case of on-demand insurance, what happens if it is not sustainable? What looks good today might not look so good tomorrow.


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To learn more, please contact:
Karen Pauli
Principal
Strategy Meets Action
774-462-7820