Disruptive Ideas for the Insurance Industry: Pay as You Go, Micro-Insurance and More

Within a short span of time, micro-insurance and the pay-as-you-go model of insurance has evolved into a long-term strategic business opportunity for insurance firms across the globe. According to US census, 49 million Americans had no health insurance. Similarly, a LIMRA study estimated that 35 million middle-market households in the US were underinsured when it comes to life insurance. The numbers were higher in the case of the property and casualty sector as the economic downturn in the US had forced people to cut down on buying insurance plans for themselves and assets owned/used by them.

Economic stagnation, increasing income disparity and increased migration of low-income professionals in the US is expected to drive the demand for micro-insurance schemes in United States.

Innovation in the insurance sector aiding the pay-as-you-go model and other cool things: What are startups up to? provides collision damage waiver and loss damage waiver policies for use with rental vehicles in the US. The company’s package starts from $5 a day to $93.99 per year. Learn more about the company from their website

Friendsurance: Friendsurance approach towards insurance is completely new. The company has implemented the concept of online peer-to-peer insurance, which combines social networks with well-established insurance companies. Customers can connect to form individual insurance networks, thereby lowering their annual insurance premiums by up to 50%. Friendsurance was founded in 2010 in Berlin, Germany and currently operates in the German market. Learn more about the company from their website.

Crimson Informatics: This company is trying to disrupt the auto insurance market. The company's hardware and software gather data on a driver’s behavior, giving insurance firms data and metrics on which to base the premium. Learn more about the company from their website

Metromile: Metromile, a San Francisco-based startup has created a device that captures mileage data to determine how much a person should pay for their car insurance policy. The company offers drivers a free plug-in device that turns ordinary cars into smart cars. The device works with Metromile's smartphone app is called Metronome and does things like diagnosing the health of the car, locating it and offering tips to help the user with their daily commute. Perhaps most importantly, the device measures mileage, so that the driver's insurance costs are in line with miles driven. Link to the company website.

Micro-insurance is an insurance product targeted for the population at the bottom of the pyramid, i.e., the extremely poor who live on less than two dollars a day. According to an estimate from the World Bank, there are four to five billion people who live on less than $8 a day. More than 50% of this population is so poor that they cannot afford an insurance product. Hence, the potential for micro-insurance products globally is approximately 2.5 billion people.

Cornerstone Insurance and MicroEnsure along with Airtel have launched a free insurance scheme in Nigeria. To subscribe to the service, customers are expected to register by dialing a number and message the customer’s name. Subscribers are then expected to recharge their Airtel account with a minimum of 1,000 naira up to 10,000 before the last day of the month. The amount recharged at the end of each month determines the life cover for the next month.