The COSO Framework for Internal Control
February 12, 2025
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The millennial consumers are remarkably different from their predecessors. This is true in the sense that whilst earlier generations preferred to own as many resources as possible, the current generation prefers to rent. This is the reason why apps supporting the on-demand economy have ended up disrupting multi-billion-dollar industries.
Take the case of Uber, which has market capitalization worth billions of dollars and yet the world’s largest transport service does not own any cars or hire any drivers! Similarly, the world largest hotel service, i.e. Airbnb does not own any properties. This major shift brought about by the on-demand services has also created a lot of implications for the insurance industry.
In this article, we will have a closer look at the effect that the on-demand economy is having on the insurance industry.
We will also understand the relatively nascent concept of on-demand insurance for the on-demand economy.
Consider the case of the insurance needs of a person who works the gig economy. The user normally uses their vehicle for personal as well as commercial needs. The problem is that for both these situations, the insurance policies provided are very different.
Hence, if the user purchases two separate insurance policies, the costs can become prohibitive. The same is the case with people who rent their properties on Airbnb. The insurance policy does not cover any damage that occurs during the course of commercial use of the property. If a separate policy is bought for this purpose, once again, the coverage turns out to be too expensive.
In both these cases, the problem is that the insurance is being sold on an annual basis. Hence, even if a person rents out their house for 10 days in a year, they have to pay the premium for the entire year. This is where the on-demand insurance marketplace is coming in handy. These services allow users to purchase insurance for the products they need for a short period of time.
Let’s understand how this works with the help of some examples.
They can upgrade on demand. In such cases, the premium is decided based on a per mile rate. With the help of sensors and other devices, insurance companies are able to find out the exact number of miles driven and can charge premium accordingly
The basic premise behind on-demand insurance is that it should be readily accessible and easy to purchase online. For this, users need to have a stock of everything valuable that they own on an insurance website. They can then use their mobile devices to switch on and switch off the insurance cover as and when required.
Hence, if more people start buying these products, it will be financially viable for the insurance industry. However, if the volumes do not grow as fast as expected, the insurers might end up losing revenue
However, it seems like the insurance companies have the technical resources to ensure that such fraudulent claims are weeded out. Since the system is obviously not 100% foolproof, fraudulent claims still remain an imminent threat.
The bottom line is that at the moment, on-demand insurance is a small niche. It covers less than 1% of the total insurance market in the United States. It still has a long way to go before it becomes mainstream. However, the idea is very appealing to millennials who are used to purchasing things on-demand online.
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