For decades, property and casualty (P&C) insurance has relied on the traditional annual policy model, where customers pay fixed premiums regardless of their actual risk or usage. However, the rise of digital technology, changing consumer expectations, and the need for greater flexibility have paved the way for on-demand and usage-based insurance models to disrupt the industry.

Rather than committing to an annual policy, policyholders are increasingly seeking pay-as-you-go solutions tailored to their lifestyles and real-time risk exposure. To meet this demand, insurers must leverage a core insurance platform that enables them to develop and deploy innovative, customer-centric policies that move beyond outdated models.

This shift toward dynamic pricing and flexible coverage is reshaping the P&C insurance landscape. But does it signal the death of the annual policy? And how can insurers adapt to this new reality?

The Evolution of Insurance: From Annual Policies to On-Demand Coverage

Traditional Annual Policies: A Legacy Model

The conventional insurance model was built around fixed-term policies, typically lasting 6 or 12 months. These policies are priced based on historical risk data, actuarial tables, and broad demographic factors. While predictable for both insurers and policyholders, this approach has several drawbacks:

• Limited Flexibility: Policyholders pay for continuous coverage, even when risk exposure is minimal.
• One-Size-Fits-All Pricing: Premiums are based on group risk factors rather than individual behavior.
• Slow Adaptation to Change: If a customer’s circumstances change (e.g., a car is parked for months or a homeowner is away for an extended period), their policy often remains unchanged.

As consumer behavior shifts toward personalized and usage-based services in industries like streaming (Netflix), mobility (Uber), and retail (Amazon), insurance is undergoing a similar transformation.

On-Demand and Usage-Based Insurance: A Paradigm Shift

The emergence of on-demand and usage-based insurance (UBI) models is reshaping how P&C insurance is delivered. These models provide real-time, dynamic pricing based on actual usage, behavior, and situational risk.

• On-Demand Insurance: Customers can activate or deactivate coverage as needed, similar to how they subscribe to digital services. This is particularly useful for short-term renters, gig workers, and infrequent drivers.
• Usage-Based Insurance (UBI): Policy pricing is determined by factors like miles driven, time of use, or telematics data collected from smart devices. This model is gaining traction in auto, home, and travel insurance.

Why Customers Are Moving Away from Annual Policies

Several factors are driving the demand for flexible insurance models that break away from the rigidity of annual policies:

1. Digital-First Consumer Behavior

Modern consumers expect seamless, app-driven experiences in all aspects of their lives. With digital platforms enabling real-time engagement, policyholders prefer instant coverage adjustments over annual commitments.

2. Economic Uncertainty and Cost Sensitivity

With rising inflation and unpredictable financial conditions, customers are more cost-conscious than ever. Usage-based insurance allows them to only pay for coverage when they need it, avoiding unnecessary expenses.

3. Growth of the Gig Economy

Millions of people now work in on-demand industries such as ride-hailing, delivery services, and short-term rentals. These workers often require flexible insurance solutions that adapt to variable work schedules and risk exposure.

4. Advancements in IoT, AI, and Telematics

Technology is enabling insurers to collect and analyze real-time risk data from connected devices. For example:

• Telematics in auto insurance tracks driving habits and rewards safe behavior.
• Smart home sensors detect fire, water damage, or security breaches, allowing insurers to adjust premiums dynamically.
• Wearable health devices influence life and health insurance pricing models.

These innovations allow insurers to move away from static policies toward dynamic, data-driven pricing models.

How a Core Insurance Platform Powers On-Demand and UBI Models

To offer flexible, real-time insurance solutions, insurers must leverage a core insurance platform capable of handling real-time data, automated underwriting, and AI-driven pricing models. Here’s how:

1. Real-Time Data Processing and Analytics

A modern core insurance platform collects and analyzes telematics, IoT, and customer behavior data in real-time, enabling insurers to:

• Offer instant coverage adjustments based on risk exposure.
• Set dynamic pricing models that reflect actual usage.
• Identify fraud and mitigate risks proactively.

2. Automated Underwriting and Policy Management

Traditional underwriting relies on manual data collection and risk assessment, leading to delays and inefficiencies. With a core insurance platform, insurers can:

• Automate risk assessment using AI and machine learning.
• Allow customers to buy, modify, or cancel policies instantly via digital platforms.
• Reduce administrative costs and improve claims processing speed.

3. Seamless Integration with Digital Ecosystems

To compete in a tech-driven marketplace, insurers must integrate their core insurance platform with:

• Mobile apps and digital wallets for real-time policy activation.
• IoT devices and telematics to personalize pricing.
• Third-party platforms (e.g., ride-hailing or home-sharing apps) to offer embedded insurance.

4. Personalization and Customer Engagement

On-demand and UBI models thrive on customer engagement and personalization. A robust core insurance platform allows insurers to:

• Offer behavior-based rewards (e.g., discounts for safe driving).
• Send proactive alerts and policy recommendations based on real-time data.
• Improve retention by building long-term customer relationships instead of one-time transactions.

Challenges and Considerations for Insurers

While on-demand and usage-based insurance offer numerous advantages, they also present challenges:

• Regulatory Compliance: Many regions still operate under regulations designed for annual policies. Insurers must navigate evolving laws to implement flexible models.
• Data Privacy and Security: Collecting and storing real-time behavioral data raises concerns about consumer privacy and data protection.
• Customer Education: Many consumers still prefer traditional policies due to familiarity. Insurers must educate policyholders on the benefits of flexible insurance.

Despite these challenges, the shift toward personalized, data-driven insurance is inevitable.

Conclusion: Is This the End of Annual Policies?

The traditional annual policy model is not disappearing overnight, but it is becoming less relevant in an era where customers demand flexibility, transparency, and real-time control over their coverage. On-demand and usage-based insurance models are gaining traction and will likely become the dominant approach in the future.

For insurers to thrive in this evolving landscape, they must adopt a core insurance platform that supports real-time risk assessment, automated underwriting, and seamless digital experiences.

The future of P&C insurance is not just about selling policies—it’s about offering adaptive, customer-centric solutions that provide real value. Insurers that embrace this transformation will be well-positioned to lead in an industry where flexibility, innovation, and data-driven decision-making define success.