This makes insurance policies complex, with many inclusions and exclusions. It makes them expensive to sell, because a specialized advisor must walk the client through all the permutations. And it makes them difficult to sell, because consumers tend to become aware of particular risks at particular times – such as the risk of injury when they buy a motorbike. There is no occasion at which someone is concerned about all the risks he will face in his life or business.
So it is not surprising that the standard insurance model, of a dedicated sales force pushing comprehensive solutions to businesses or individuals, is struggling to deliver growth in mature economies. For the past five years, premium income has grown more slowly than GDP.
And marginal costs continue to rise due to complexity and regulatory demands. Yet there are exceptions, and they point the way to a brighter future for insurers. For example, people now often buy travel insurance online, immediately after they have bought a holiday or flight. Similarly, when people buy cars, they are usually buying an insurance policy embedded in the warranty.
These policies cover narrowly defined risks and are sold at the time and place where the consumer becomes aware of them, usually through a partnership with the supplier of the insured good or a closely-related client access point. This "on demand" model thereby avoids the problems of the standard "push" model – the complexity, the cost, and the consumer indifference.
Insurers are beginning to adopt this model, for example, when providing coverage for special travel or accidents or when marketing at specific occasions such as birth or marriage. But this only scratches the surface of the potential for on-demand insurance. Insurers could offer new types of protection for everything from biometric risks when a new child is born to cash flow protection when a person changes his or her job.
By doing so, the on-demand model would give insurers significant opportunities for increasing sales while reducing costs – rewriting the rules for the entire industry.