Embedded Insurance and the On-Demand Driver

Author: Dan Bratshpis, Co-Founder and CEO, INSHUR


The platform economy is rocketing. In 2022, Uber drivers completed 7.6 billion trips, generated $14 billion revenue from ride-hailing, and $10.9 billion from mobility; since 2018, Amazon Delivery Service Partners (3,000 entrepreneurs and 275,000 drivers) have generated $26 billion in global revenue.

We are relying heavily on on-demand drivers to keep us going with transportation, food and package deliveries. Yet, for on-demand drivers on platforms such as Uber, Lyft, Amazon, Bolt, Deliveroo, DoorDash and others, buying suitable auto insurance that fits their flexible working lifestyles can be a challenge – and a significant expense.

On-demand drivers often use their personal vehicles which convert into commercial ones, meaning auto insurance needs to adapt to how their vehicles are used. They are also often from marginalized communities and use these platforms as their sole source of income, so are likely to be at the most socioeconomically challenged end of the spectrum.

Although our lifestyles have moved from traditional brick and mortar to on-demand services, insurance for these drivers simply haven’t kept up with the on-demand nature of driving, thus creating a pain point and an area of uncertainty for them, as well as a lost opportunity for platforms and insurers.


Insurance and the On-Demand Driver

In most of Europe and in a few US cities such as New York City, on-demand drivers need to hold commercial auto insurance as they are seen as professional drivers. The beauty of on-demand work is that drivers can choose when and where they want to work, meaning some drivers are driving for on-demand platforms part time to supplement their income. Unfortunately, traditional commercial auto insurance applies a blanket approach which makes little financial sense as on-demand drivers self-manage their hours, type of work, location and duration.

In other parts of the world and most of the United States, mandatory insurance regulation applies a different approach for on-demand drivers which is based on defined usage called “Periods”. Period 0 is when the car is being used for social, domestic or personal purposes only; Period 1 triggers when a car is stationary and empty with the on-demand app enabled. Period 2 applies when the car is on the way to collect a passenger or pizza, and Period 3 commences when the passenger or pizza is on board and being transported to its end destination. Each period has a specific insurance protection associated and is an important element in the US when insuring on-demand drivers; and these can vary by state.  Effectively, on-demand drivers using their own personal vehicles are usually covered through their personal auto insurance for Period 0 and sometimes Period 1. However, these complexities can often result in many gray areas that cause a lot of confusion at point of claim.

In addition, the buying experience for commercial insurance is also not in line with modern day experiences. Drivers who need to apply for commercial auto insurance often involve them having to physically visit a shop with a broker who then submits the application to the underwriters at the carrier. All in all, getting insurance can take days meaning the driver is forced to stop working and earning, thereby affecting their income. Insurance simply hasn’t kept up with the seamless digital experience provided by the platforms they use.

It’s a conundrum as on-demand drivers play a huge role in our society, particularly since the pandemic.  So why should they have to navigate coverage complexities like this? Why do they need to purchase products that do not align with their working habits? Why should it take days to weeks for insurance coverage to be granted? And why should a driver be forced to lose earnings because there is no immediate protection or there is a ‘blurring’ of lines with protection?

Insurance has fast become a millstone around the necks of on-demand drivers who want insurance to match the digital experience of subscribing to a driving job, without having to pay a premium or manage the complexities of coverage. Some commercial auto insurance policies can cost upward of $10K annually which is a huge chunk from a driver’s income, especially if they are driving to already make up for an income shortfall.

The insurance industry owes on-demand drivers fair, accessible policies, and this is where embedded insurance plays a significant role.


Embedded Insurance: Revolutionizing On-Demand Driving

Embedded insurance offers an immediate solution. While it has become a popular concept for consumers who now often tag on protection at the point of purchase for items like concert tickets, travel, health and car hire, the auto insurance industry is just starting to realize the benefits of embedded insurance. By purchasing insurance products and making claims via apps linked to on-demand platforms like Uber and Amazon, drivers can expect a seamless, frictionless experience which quickly matches them to the appropriate coverage for the type of work they do (transportation or courier), factoring in a myriad of data points including duration and location.

Effectively, embedding insurance eliminates the need for drivers to go through additional manual steps or fill out complex forms to obtain auto insurance, as all the data is collated from the platform or app. Platforms offer insurers a direct link to the driver meaning sharing of alternative data allowing for better underwriting, leading to better loss ratio and competitively priced insurance products. Drivers are not only matched to appropriate insurance, but also covered for risks they didn’t realize they needed. As a result, drivers can simply ‘tap and drive’ with the confidence that they are comprehensively protected at the right price. The outcome is drivers getting more suitable products; platforms having happier, more content drivers; and insurers getting better underwriting results; making it a win-win-win for all three: the platform, the driver and the insurer.


Underwriting the Two Ps: Price and Protection

Embedded insurance can make a huge difference to the financial wellbeing of on-demand drivers as insurers can develop fair pricing products for each individual based on a wealth of information.

Underwriting plays a significant role in providing a fair policy for the on-demand worker, especially with drivers switching between types of work, such as from livery to courier. Furthermore, technology, dynamic pricing and deep understanding of insurance loss ratios are factored into the algorithms, which can crunch quickly through other data points to offer personalized insurance products for individual drivers.

Data from the platform (such delivery or trip data)), from claims and other proprietary datasets relevant to the on-demand worker such as speed, incidents, driving ability and safety, ensures that coverage is comprehensive and adaptable to the type of work the on-demand driver chooses to do. Embedded insurance offers on-demand auto insurers the opportunity to leverage all this data and mitigate any risk of alienating a huge workforce that has chosen flexibility and financial control over traditional working patterns.

On-demand drivers are leading the charge of the on-demand economy and through the convenience of embedded insurance solutions, their hearts and minds can be captured and the industry transformed.

Embedded insurance produces a symbiotic relationship between the on-demand driver, the insurer and the platform: each benefits from the involvement of the others, ultimately developing deeply personalized underwriting coupled with accurate pricing models that lead to an amazing customer experience that fosters loyalty.  Auto insurance now has the opportunity to revolutionize itself for the on-demand economy.



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