Pay as you Live Insurance

With the advent of smarter technologies involving artificial intelligence, machine learning and big data, many products & services are also becoming smarter. They are capitalizing on the power of these technologies to provide redefined customer experience. Insurance is one such industry.

Insurance, by its nature, has a high potential in this area as it collects variety of customer data and then offers tailored products to meet the customer needs. One such futuristic product or methodology of offering the products could be “Pay as you live” insurance.

Pay-as-you-live (PAYL) insurance

Pay-as-you-live (PAYL) insurance differs from the conventional insurance schemes as it is dependent on behavioral and lifestyle aspects of the customer. It is a smart solution that uses data from different user touch points and alters the insurance offerings in real-time. Its major attributes can be summarized as:

One basic use case for this could be the alteration to health insurance cost or provision of other benefits if user walks certain numbers of steps daily.

Traditional vs PAYL Insurance

Unlike traditional insurance which is based on yearly intervals and any customer interactions, changes to the offerings and collection of insights can only happen yearly, the PAYL insurance strives to be real-time in its offerings as well as dealing with customers. A detailed comparison between the two in different insurance lifecycle stages is presented below:

Benefits of pay as you live insurance

PAYL insurance brings multiple benefits for both insurer as well as the customers.

Benefits for customers:

1. Financial rewards: Customers can get lower premiums or other financial benefits for healthy habits
2. Transparency: Customer will pay only for the insurance services they are availing based on their habits
3. Control: More customizability and control over the insurance products by behaviour
4. Faster processing: Faster procssing and resolution as insurer is aware of customer habits & situation in real-time
5. Convenience: Insurer will prompt the customer with changes and the impacts with possible resolutions

Benefits to Insurer:

1. Customer insights: Better customer insights through real-time data and targeting healthier segment
2. Customer engagement: Regular customer involvement as customer can see the impact of his/her actions in real-time
3. Cross sell & up sell: Cross-selling and up-selling as customer is constantly communicating with the insurer

Fundamental requirements for pay as you live insurance

Technological requirements:

1. Smart & connected devices: Smart devices to collect customer data in real time like smart watches for fitness, smart sensors for safety & IoT enabled appliances/ vehicles for behavioral tracking
2. AI/ML capabilities to enhance the processing speed, make sense of the collected data and design customized offerings. It is also necessary for real-time alterations & decision making
3. Infrastructure that allows collection, storage & usage of data as well as supports efficient communication. This includes fast internet, supporting hardware and integrated software

Behavioral requirements:

1. Availability of data: It will also depend on the customer’s willingness to share data. Customers are generally privacy sensitive and will agree to share data only if it benefits them
2. Customer education: Customer should be able to understand the complex real-time offerings that the insurer is providing. They should also be able to operate the smart devices and communicate accordingly
3. Value proposition: Customer should be able to perceive the usefulness of the PAYL offerings. These offerings reward customers for healthy/safe habits and will need customers that fir into that user group

Use Case: Pay as you Drive Insurance

Pay as you drive insurance or pay per km insurance allow users to pay policy premium or get additional benefits depending on number of kilometers driven in a year.

Insurer are already providing this kind of insurance offerings including Acko, Digit, ICICI Lombard and more.

Use Case: Pay as you Workout Insurance

Pay as you workout insurance or active insurance benefits allow users to pay policy premium or get additional benefits depending on number of kilometers walked/run, number of workout sessions performed or number of active days.

IRDAI (Insurance Regulatory and Development Authority of India) in 2020 have issued guidelines on wellness and preventive features. It asked all life, general and specialized health insurers to include features and benefits in their health insurance plans that drive policyholders towards maintaining a good health.

Insurer are already providing this kind of insurance offerings including Acko, HDFC Ergo, Aditya Birla Capital and more.

Challenges

The major challenges are following:

Customer Suitability

• Customers with bad habits
• Customers who prefer fixed yearly policy over continuous interactions
• Customers without resources (income, internet, devices, etc.)

Privacy Concerns

• Why would user share data?
• Right to be forgotten
• Usage of data: How will the data be used? Which parties can access our data?

Quantification of Behavior

• Do we have enough tech to measure everything?
• Many components might be omitted
• Impact might be over/under-estimated

Accountability

• Customer must put extra efforts to justify their behaviour
• May involve unfair practices like fake reporting

In our opinion, the market is moving in the right direction of hyper-personalization and customer involvement for PAYL insurance to become a reality. But lack of adequate technology, models, and privacy concerns make it a far-fetched reality.