A rise in shared car ownership, COVID-19-inflicted changes to commuting, and the growth of the gig economy are opening up prodigious opportunities for a wave of insurance upstarts. These pay-as-you-go or on-demand insurtechs are quietly forging market share by tapping into the current demand for flexible insurance models.
Much like fintechs in the banking sector, these insurtechs are hoping to rip up the existing insurance model and make household names of the likes of Zego, Cuvva and Metromile: they have some numbers to shout about.
Zego, for example, which provides cover by the hour for drivers and riders contributing to the gig economy, now insures a third of the UK’s food delivery market and recently underwent a multi-million pound fundraise to fund its European expansion.
Cuvva, the first firm to provide hourly motor insurance in the UK, sells 4.5% of all motor insurance policies in the UK by volume, according to industry figures.
“We believe that usage-based insurance and pay-per-mile is going to be the future of insurance as consumers demand more flexible insurance options,” says Rick Chen, a spokesperson for Metromile, the pay-per-mile US car insurer.
Society Is Changing
The rise in demand for pay-as-you-go motor insurtechs is driven by two principal reasons.
The first is societal changes: for example, the rise in city living is increasing the number of low-mileage drivers who only use their cars at weekends while the environmentally-conscious are increasingly opting to hire cars, instead of purchase.
Secondly, tech-savvy entrepreneurs want to disrupt the age-old insurance industry, believing incumbents are ripping off customers and their technology is antiquated.
Like fintechs, these pay-as-you-go insurtechs offer a speedy sign up service through an app, which offers them instinct viewing of their policy by a touch of a button.
One expert highlights the opportunity for pay-as-you-go insurtechs amid an insurance sector, which is seen as a digital dinosaur. Adrian Rands, founder and chairman, Quantemplate, a startup that provides data solution for insurers, said: “If you look at the way the industry operates, there is still a long way for it to go.
“Insurance is roughly 15 years behind the banking sector with regard to automation and digital comms.
“If you see where payments and banking is today, that’s where insurance will be in 10 years. It will probably catch up a bit quicker, so it won’t remain 15 years behind. But it’s still not at the forefront of digital transformation.”
Market Still Relatively Small
In the UK, the pay-as-you-go insurance market is still relatively small. Crucially many of those signing up to these insurtechs are millennials, who tend to be trendsetters, perhaps wanting a car for a short period of time or car-sharing with a friend for their commute.
For instance, 49% of Metromile’s policyholders are millennials or younger. Although there aren’t figures for the size of the market, it is dwarfed by the size of the annual insurance market, which is worth over £10billion a year in the UK annually. Such an alluring prize has prompted Cuvva to now move into the annual market with a monthly subscription service.
Cuvva chief operating officer Andy Tomlinson said the short-term market insurance has been “exciting” and the “source of a lot of growth” for Cuvva but the market is “fairly niche”.
Caution Amid Insurtech Casualties
Despite the potential for motor insurance to be disrupted by pay-as-you-go propositions, these insurtechs will be wary that the insurance market can be unforgiving.
For example, insurance company Aegas has pulled the plug on its app-based millennial insurtech Back Me Up while Axa-backed Trov also quit the flexible gadget insurance market.
More recently, Cuvva has quite the travel insurance market due to the impact of covid.
Tapping Into Rise Of The Gig Economy
One pay-as-you-go insurtech that has achieved traction by tapping into a societal shift is Zego. Zego started out offering flexible motorbike insurance for gig workers and has now broadened its offering to a range of commercial car insurance products.
The London-based startup, which acquired its own insurance licence in 2019 meaning it can build and sell its own policies, now offers motor insurance for businesses, from self-employed drivers and riders to fleets of vehicles, from pay-as-you-go insurance to annual policies.
Operating across five European countries, a spokesman for Zego said it currently insurers around two thirds of the food delivery market in the UK.
Covid Heightening Demand For pay-As-You-Go
Covid-19 has only served to heighten demand for Zego, said the spokesman, although he admits that the pandemic delayed a fundraise.
“During the covid-19 pandemic, there has most certainly been an increased need for flexibility and a more affordable insurance solution,” the Zego spokesman said. “In light of this, we have enticed a lot of new customers, such as in the delivery market, who are choosing Zego as their insurer, as well as the commercial fleet space which includes new mobility services, such as car leasing and e-scooters.
“Fleet companies, in particular, are seeing the benefits of our insurance offering as incumbents.
“We are able to offer a far more bespoke and affordable policy, based on telematics data that uses driver behaviour to price according to a fleet’s performance. “
Likewise, Cuvva said it had witnessed an uptick in motor insurance customers during covid.
“We actually found lots of people became quite reliant on us during Covid as a way to get around by virtue that they couldn’t hop on a train or a bus or a tube or a bike,” Tomlinson said.
Also, potentially favouring pay-as-you-go insurtechs during covid was the public backlash against insurance incumbents, after it was revealed many drivers failed to receive any premium refund from their car insurer, despite many motorists drastically reducing their mileage during the pandemic.
Incumbents Making a Play
The incumbent insurance titans have realised the potential in the pay-as-you-go market, hoping that their brand recognition and marketing muscle will help them meet the challenge from the upstarts.
Admiral, for instance, offers Veygo, which allows drivers to take out car insurance cover as little as an hour to allow them to borrow a friend’s car while Aviva’s AvivaPlus product offers flexible insurance.
A US Example
One pay-as-you-go insurtech leading the charge in the US is Metromile, which launched in 2012 and aims to capitalise on what it sees as the iniquity of the US car insurance market.
Primarily, instead of a standard flat fee, Metromile, which is listed on Nasdaq, charges customers based on their mileage, which is measured via a device plugged into the vehicle.
Metromile says that two thirds of US drivers are low-mileage and adds that by charging pay- per-mile, it customers save 47% on average compared to the previous owner.
Chen points to changing societal trends like hybrid working models, and car ownership becoming less common as reasons why pay per mile has a rosy future.
“In the first quarter of 2021, we have seen driving among out customers shift dramatically. They are moving the times of their trips from these typical peak hour times to the afternoon.
“We are also seeing an increase in driving on the weekends, so as to suggest that people are staying home at the weekdays.”
The incumbents offering a similar service to Metromile in the US are expensive, he says.
Payments In Crypto
Metromile, which has just benefited from a $50million investment from a former Uber executive, is soon to allow policyholders to pay premiums with cryptocurrency, with plans to buy $10million worth of bitcoin and even receive claim payouts in cryptocurrency.
A first for the industry, Chen explains the thinking behind the move, which is expected to launch late next year, “Cryptocurrency is becoming more mainstream in the US. And we believe that cryptocurrency or bitcoin can provide faster payments.”
The pay-as-you-go insurtechs are occupying an important niche of the motor insurance market. Societal changes, particularly those linked to helping the environment, appear to play into their business models. Furthermore, as their brand recognition grows, they will likely look to move into more lucrative areas of the insurance market.