Capital Markets Corporate

December 19, 2019

Insure & chill: how subscription-style products became the latest insurance trend


We’re witnessing a growing trend in financial services of offering subscription-style insurance products. In an industry that has struggled to convince consumers of the need for cover, could a subscription model be the answer – or does greater flexibility bring greater risks?

Subscription-based services have permeated modern culture, seemingly in tangent with the huge growth of streaming entertainment provider Netflix, which now boasts over 158 million paid memberships in over 190 countries. Gone are the days when monthly subscriptions were limited solely to magazines; subscriptions now exist to cater to seemingly any interest, including beauty products, food, cars, books, music, plants and alcohol.

More recently, the financial services industry has caught onto this trend. Challenger banks Revolut and Starling, for example, both offer premium services for a set fee that includes perks like free ATM withdrawals, newly designed cards and unlimited interbank foreign exchange.

The insurance industry is particularly keen to tap into this new model. Insurtech companies like Digital Risks, Cuvva and Brolly have built their entire proposition around the idea of flexible or pay-as-you-go cover that can be toggled on and off as required.

The launch of Aviva’s AvivaPlus policy in December 2018 indicated that subscription-style insurance had gone mainstream. Introduced to tackle concerns around the industry charging existing customers more than new ones, it allows home and car insurance customers to make monthly payments with no interest and no cancellation charges.

And most recently, HSBC is jumping on the bandwagon – offering up to seven types of cover for one monthly fee – it seems subscription-style insurance services are here to stay. Research carried out by YouGov shows convenience and flexibility are the two main drivers for insurance customers and identified a strong desire for subscription style arrangements instead of fixed contracts.

Insurers will be hoping that more flexible arrangements will tempt a new generation of customers to take out cover. However, while innovation that affords greater product flexibility is generally a positive for consumers, there are potential setbacks associated with the model.

Some types of insurance are more suitable for temporary activation than others. Travel insurance is an obvious example, with customers generally only needing cover a few times a year. Flexible motor cover is also convenient for student or temporary drivers, who might only drive their car for a few short periods of the year.

But the ability to toggle policies on and off could potentially lead to consumers accidentally going without cover. For this model to be successful, customers need to be fully engaged with their policy and insurer. A driver might forget, for example, to switch their cover back on when driving again after a period off the road – or be more tempted to drive without cover just for the day to avoid the hassle of switching it back on.

Making cover flexible could also contradict the industry’s efforts to convince consumers that insurance should be an essential rather than optional purchase. One of the products in HSBC’s new Select and Cover range is life insurance. Given than only two in five of those with a mortgage have life cover, the industry faces an uphill battle to ensure more people’s finances are protected in the event of their death. An already difficult message to communicate, positioning this product as something that can be switched on and off might make delivering this even harder.

One benefit, however, is that a subscription-style service allows for more opportunities to send communications and build loyalty. While a fixed contract typically allows for interaction at the beginning and end/renewal of a policy, turning cover on and off throughout the year gives insurers multiple opportunities to speak to customers.

Insurers should use these new opportunities to their advantage, providing value-add content such as advice and wellbeing tips for an upcoming holiday. Crucially, insurers must also ensure their communications are crystal clear; customers must be fully aware their policy has been switched off, and the potential consequences of this. Only through clear and consistent communications can insurers avoid finding the finger of blame pointing at them if a customer needs to claim but their cover is inactive.