4 ideas to inspire your next pay-as-you-go insurance product
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AUGUST 16, 2021
Pay-as-you-go insurance is here to stay
Insurance customers are increasingly seeking flexible, pay-as-you-go insurance options. Also known as usage-based insurance (UBI), this type of coverage is commonly used for personal auto insurance, which is powered by telematics data and charges premiums based on the distance a vehicle is driven, the quality of driving (heavy braking or quick acceleration), and surrounding factors (e.g., location, weather, construction).
Given UBI’s massive potential—the market valuation is expected to reach $125 billion by 2027—it’s no surprise that insurers are rapidly incorporating UBI into their offerings. Nationwide launched a “work from home” insurance bundle that combines UBI auto coverage with a home or renters policy and identity theft coverage. Chubb, the world’s largest publicly traded P&C insurer, recently announced “pay as you roam” travel insurance, which identifies when customers are outside their home country based on mobile phone data and activates coverage automatically for a daily premium.
As insurers look to differentiate their offerings and give customers more flexible pricing, they’ll find an incredible opportunity in pay-as-you-go products, even beyond auto. To help insurers get started, we’ve outlined four ideas for UBI products that leverage modern technology to address the needs of today’s customers.
“Pay as you work” business interruption insurance for gig workers
Business interruption insurance replaces income lost if a business halts due to direct physical loss or damage. It typically covers operating expenses, a move to a temporary location, payroll, taxes, and loan payments. Premiums are calculated based on the scope, coverage, and risk of the business.
For gig workers, such as rideshare drivers or home rental hosts, business interruption insurance can provide coverage in case of disruptions like vehicle accidents or property damage. But it’s difficult to calculate a premium for gig workers who have varying monthly incomes and clocked hours.
UBI offers the gig industry more affordable, transparent, and flexible access to business interruption coverage by charging premiums only when gig workers earn income. For a rideshare driver, that could be at the end of each trip; for a home rental host, that could be after each stay.
To take it a step further, the next generation of rideshare insurance could also cover multiple types of usage within a single product. Drivers could get one rate for the miles driven on the job and another rate for miles driven as a personal vehicle. Riders might also be able to pay a small fee when ordering to cover medical injuries during the trip (think “pay-as-you-ride” medical insurance). Home rental hosts who also live in the building could maintain a single policy that splits the rate between traditional homeowners and usage-based renters.
Socotra recently helped a top-three global insurance company build an Insurance-as-a-Service platform for distributing on-demand insurance products. The insurer partnered with a leading rideshare company to provide business interruption insurance that covers drivers in the case of an accident, with premiums calculated based solely on completed trips.
“Pay as you run” equipment breakdown insurance
Equipment breakdown insurance protects policyholders in the event of machine disruptions caused by power surges, burnout, malfunction, or operator error. This type of coverage typically pays for repair or replacement costs of mechanical and electrical equipment, business income losses, and other expenses.
Equipment breakdown insurance is normally billed based on a business’ industry, size, and annual revenue, as well as which types of equipment need coverage. In recent years, manufacturers have started leveraging IoT devices in smart factories to monitor equipment, reduce downtime, and increase productivity.
IoT devices also have the potential to enable “pay as you run” equipment breakdown insurance, which could be charged based on how long the machinery runs and how well it’s maintained. This type of UBI could allow businesses to pay more accurate premiums and receive discounts for activities like proactive maintenance.
“Pay as you employ” workers’ compensation insurance
Many employers are required to purchase workers’ compensation insurance to cover medical care, lost wages, disability benefits, legal costs for employees that experience a work-related injury or illness.
With “pay as you employ” insurance, businesses can use payroll data to calculate workers’ compensation premiums in real-time instead of quarterly, which reduces large upfront payments. Employers can purchase workers’ compensation insurance with little money down, and then pay the premium in smaller amounts over the course of the year.
In the future, if gig workers are classified as employees rather than independent contractors, “pay-as-you-go” workers’ compensation insurance will also be necessary for gig companies to manage a highly variable number of workers, employee hours, and wages.
Socotra offers workers’ compensation insurance as part of our out-of-the-box product library, which gives insurers a head-start on product configuration and significantly shortens implementation timelines while accelerating time to market and reducing costs.
“Pay as you ship” marine cargo insurance
Marine cargo insurance protects against physical loss of property or damage from external causes during shipment. Coverage may extend to a wide variety of events, including theft, improper handling, water damage, and property falling overboard. Premiums are based on the type of property, its value, and previous losses.
With the rise of IoT devices that can track shipping containers in real-time, insurers will have the data needed to calculate rates based on distance traveled, type of transportation, and more. Marine cargo insurance is also notorious for long, manual processes for quotes and claims. “Pay-as-you-ship” insurance provides an opportunity to accelerate and simplify those processes, which can reduce claims administration costs and improve risk management decisions.
In the future, connected devices could enable cargo to be automatically insured with variable rates depending on the mode of transportation (e.g., airplane, boat, train, truck), weather conditions, and location.
Easily power pay-as-you-go insurance products with Socotra
As insurers face increasing pressure to develop flexible product offerings that better meet the demands of today’s policyholders, they’ll need a modern platform to create and maintain these products.
Socotra’s API-driven, true-cloud platform helps insurers easily build and launch UBI products. Using our Premium Reporting feature, insurers can calculate premiums retrospectively. There is one invoice per premium report, which is generated at the time the report is issued. Our Premium Reporting feature natively supports billing models for any UBI scenario, including:
- Workers’ compensation where payroll changes monthly
- Automobile insurance for fluctuating driving patterns in mileage-based policies
- Commercial policies for varying fleet sizes
While personal auto insurers were the first to capitalize on the enormous opportunity for pay-as-you-go insurance options, they certainly won’t be the last. Today’s customers want flexible pricing, and insurers in every market would be wise to continue looking for innovative ways to meet their needs.