It’s becoming fashionable, in this increasingly mobile orientated world, to question why insurance is sold on an annual basis. One speaker at a recent conference professed to be flabbergasted that annuals policies were still the norm. Just ripe for disruption was his point, by start ups with business models based around the Triple M of ‘insurtech’ – micro, mobile and moment.
And there is something behind his argument: insurance has not always been that innovative, being a product more often sold than bought. It can be far from simple, asking lots of questions and offering complex products. There’s lots of room for improvement then, but is there a danger that, in its admirable pursuit of the new, the sector jumps from the frying pan into the fire?
A lot of insurance is sold on an annual basis for the simple reason that we don’t know when a loss will occur. We own and use a lot of ‘stuff’ throughout the year, so we need cover for it throughout the year. Think of annual insurance as ‘covered all the time’ insurance.
Clearly though, if the risk ‘moment’ was less than a year, then a product that fits that ‘moment’ would on the face of it make sense. After all, why buy more than you need to? Yet there are two issues here. Firstly, there’s value. Such ‘moments’ are rarely ‘one-offs’: there will usually be several of them during the year and buying cover for each individual moment is bound to add up to more than what would be charged for an equivalent annual policy.
And secondly, there’s moral hazard. How will the insurer know if that moment is a moment in relation to cover or a moment in relation to a loss that seems more likely than usual? What’s to stop consumers weighing up each moment, between the low risk ones to self insure and the high risk ones to pass over to the insurer? After all, won’t the consumer view Triple M style insurance as offering them that very choice?
Triple M is presented as cover for all those little things in life, just what you need, just when you need it. The premium won’t add up to much and buying insurance will seem just like buying an ‘app’ for your mobile. Yet just as the premium might seem low, so might the cover as well. And given that people usually pay little attention to buying ‘apps’, then they’re likely to pay little attention to the cover they’re actually getting for those few pounds, euros or dollars. The situation seems ripe for mis-selling, akin to that befell identity theft insurance.
Yet making insurance more accessible, more simple, more tuned to the different needs of different consumers is absolutely a good thing. What the Triple M movement must remember however is that there are insurance fundamentals that ‘insurtech’ firms ignore at their peril. One bright star of US insurance technology start-ups had to admit to just such a problem when presenting their latest set of disastrous results.
I want Triple M insurance to succeed. A bit more thought to a wider range of consumer issues is more likely to deliver that.