Risk classification with on‐demand insurance

Abstract

On‐demand insurance is an innovative business model from the InsurTech space, which provides coverage for episodic risks. It makes use of a simple fact in a practical way: People differ in their frequency of exposure as well as the probability of loss. The extra dimension of heterogeneity can be used to screen the insured and shifts the utility‐possibility frontier outward. We provide a sufficient condition under which type‐specific full insurance at the actuarially fair price is incentive compatible. We also show that our results hold for various real‐world implementations of on‐demand insurance.

InsurTech in the United States and Germany—What are the drivers behind the different business models?

“…While there is some literature on specific business models such as on-demand insurance (Braun et al, 2023;Zeier-Röschmann et al, 2022), usage-based insurance (Che et al, 2022;Holzapfel et al, 2023) or the impact of artificial intelligence on business model transformation…”