TLDR It wasn’t that long ago that production and retail inventories were gauged by the space available in which to store the supplies/goods. Then some smart people determined that in a well-managed, lean operation inventory could be obtained upon instant need, and thus Just in Time (JIT) Inventory principles were developed.
Is the time ripe for ‘Insurance in Time’ (IIT) ?
JIT is an inventory management strategy that:
- aligns raw material orders from suppliers directly with production schedules.
- Companies use this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which
- reduces inventory costs.
- This method requires producers to forecast demand accurately.
So why not apply similar principles to commercial insurance? Insurance in Time (IIT), a risk management strategy that:
- Aligns the type and duration of cover when operations need it
- Causes management to consider what cover is needed (or not needed) and when
- Reduces premiums and policy period obligations
- Requires management to consider risk holistically and forecast cover accurately.
A little crazy? Maybe not as risk assessment methods become ever more predictive. Why not have insurance cover only when needed, not paid for when not? Or, cover that is paid for based on use alone? Seems unorthodox at a minimum, but in a gig economy or side hustle environment, all participants become Subject Matter Experts (SME) or Small Medium Enterprises (also SME), and the need for insurance cover may apply. Changes in business models, changes in risk management needs. There are commercial insurance companies who are positioning themselves to leverage the changes in how insurance policies/cover are devised. While there are many entrants in the market, for purposes of the article we will look at Verifly (US), Dinghy (UK), mailo (DE), and Grab/Grab Financial Group (SG).
Founded in 2017, Dinghy Insurance is the founders’ idea of a fast, responsive, flexible, and ‘there when you need it’ insurance for freelancers. The company’s quote form is intuitive in its use (indicative data and general business activity), cyber, general liability, equipment, and professional indemnity cover. And, per the site, “Turn on or off, up or down. No fees. No admin charges. Charged by the second, billed in arrears. The site also has FAQ that help educate less informed SMEs about risk pitfalls. So for the
new to business or new to insurance, a purchase by the pound option. Beazley and Lloyd’s are backers for the underwriting activities. As a capper for the SME types- The Dinghy is active in supporting social good and living wage initiatives- appealing to sector expectations.
A new entrant to the German SME market, looking to disrupt how and from whom SMEs obtain commercial cover. Episodic insurance being right or wrong, mailo estimates there are six million (yes, million with an ‘m’) target customers in Germany, suggesting half of the existing SME businesses being currently uninsured. Incumbent carriers address the needs of some of the target businesses but find the line to be unprofitable. If one considers how the self-employed, gig, or side hustle market is growing, and being under-served by brokers, the opportunity for capture of the entrepreneur/self-employed market through digital methods is high.
Mailo operates as a full stack carrier for P&C covers, with approximately 80% of the firm’s premium being generated through brokers, suggesting customers are looking for the cover and being facilitated through their insurance professionals. Claims are handled in house and by third party administrators (TPAs) so for the most part the customers’ service is closely overseen by mailo staff.
Not on demand, per se, but in demand. With an eye on stability within Germany then opportunities for e2e expansion within Europe.
Grab/Grab Financial Group
As a natural growth offering Grab (ride sharing service in SEA) is now offering on demand microinsurance that is a seamless extension of rides- if the driver is enrolled, premium is contributed from the revenue the ride generates. No on/off switch other than engaging a rider. Considering the fact that within the SEA market almost ¾ of the population is under-served for most financial services, offering these micro policies not only engages new commercial clients (and open to individuals), but the offering provides entrée into an ecosystem environment.
Grab has partnered with Indonesia’s virtual wallet co. Ovo, Chubb Insurance, and financial services firm Credit Saison. Grab have on demand cover, ecosystem connection, and financial and insurance expertise to serve the clients.
The foundation of this company’s model is- not everyone works 9 to 5. This isn’t just a schedule concept, it’s an indication that Verifly wants to be the on-demand carrier that is there for the freelancer who has a gig Saturday evening between 10 PM and 2 AM, and who recognizes a need for cover. These are the side hustlers who are evolving into entrepreneurs. The fully digital purchase platform is available to individuals and brokers alike, a recognition by the firm that on-demand cover can be supplemental to traditional BOPs, and for as long or short as the customer needs, priced to be the value customers need. An interesting recent partnership with InsureMyEquipment further expands the flexible coverage options, with on demand capability to insure for temp staffing and equipment. Brokers engage the company to fill the gap left by traditional carriers for customers who need immediate, small policies.
Verifly is the tech end of the value prop (smooth navigating app and user dashboard); Markel Insurance is currently the underwriting and claim support for the service the firm provides.
It all sounds good- ease of customers acquiring cover, clear underwriting support, and a previously under-served demographic.
Somewhat parallel inroads to digital SME cover in the UK, Germany, the US, and southeast Asia. On demand, consumption-based, call it what you will.
I did ask some US-based agents for their input, and to be clear there was skepticism voiced for the efficacy of short-term policies. The sales and tech approach were seen as good but concerns were voiced:
- App-based sales may be convenient, but will the purchaser know what risks to cover? Commercial insurance is typically purchased cafeteria’ style- the foundation policy is then enhanced with endorsements. Considering the relatively narrow lines offered by the four and considering three of the four firms discussed are not domestic US firms, this may be an overstated concern in this context.
- Are the innovations taken from the customer backwards? Is there a sufficient groundswell of demand from what is typically a very informal work environment?
- Are the business models scalable to profitability? Mailo hinted at a path to a <100 loss ratio (and is the only full stack player here), and is a firm with a full C Suite of experienced insurance persons. Grab is part of a large ecosystem with many options for InsurTech product growth, and the insurance products are backed by firms that can easily scale. Verifly- too early to tell for Verifly’s growth initiative but taking a page from existing commercial programs it seems that the addition of Worker’s Compensation and other lines would serve to build a growth foundation.
- The Dinghy has a track record of success but as with any of the four firms- is there sufficient barrier to entry from new entrants or from clever incumbents? The depth and breadth of underwriting data expands daily, clever developers abound, and the easier it is for brokers to engage websites then the broker channel may prove the key to SME insurer loyalty.
- On demand cover cannot be driven by the customer having his/her hand running an on/off switch- too many opportunities for error. The trigger of cover needs to be automatic, e.g., when an employee digitally clocks in or out, or a company vehicle is started or parked for the shift. IoT applications will facilitate effective on demand/consumption-based cover.
- As always- claim service differentiates a firm within a coverage line. Convenience of episodic purchase will be lost if claims become burdensome. And all digital players need trapdoors to analog service recovery methods.
- Must remember that some on-demand early entrants have had early exits. Need to learn from their experiences.
Insurance in Time– good to have, just as with clever JIT inventory using companies have the new stock coming in the back door as the last of the item is sold and out the front. But poor supervision of JIT means the X Box is out of stock, or the 3cm threaded bolts are unavailable to fasten the muffler bearings. Or in the instance of IIT- liability cover is not in place when young Marta rushes the stage and trips over the bass player’s amp.
The four companies can be watched as exemplars of this aspect of insurance product innovation that is enhanced by tech.
Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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