Canadian providers must embrace episodic insurance more quickly says advisor

Published: April 17, 2017

Updated: July 24, 2018

Author: Luke Jones



Insurance companies in Canada are not considering episodic auto insurance enough. Embracing coverage options away from traditional lengths could unlock exciting potential, Mukul Ahuja, leader of insurance strategy and innovation at Deloitte Canada, claimed on Thursday.

“Not nearly enough carriers are looking at that seriously as an opportunity right now in terms of the potential,” Ahuja commented during the Canadian Insurance Accountants Association’s Tech IT Forward event in Toronto, sponsored by Deloitte Canada.

“How do you start to think about policy outside of this traditional one-year term or two-year term?” he asked attendees. “Think about being able to provide policies just in time or on-demand for the needs of the consumer.”

Canadian insurers still offer policies based on six months or one year, and customers still pay for coverage based on those terms. However, there has been a global rise in telematics-based insurance, which in turn is leading to the further development of usage-based insurance (UBI).

“These types of business models are essentially providing a different flavour to the kinds of products and services that can be provided, and providing different underwriting models for carriers to think about,” Ahuja explained.

As well as auto insurance episodic insurance could help other areas, such as home insurance and ride-sharing insurance: “there’s real potential opportunity to bring a newness of model and adjacent products into mainstream.”

Still, Ahuja warned attendees that providers in Canada are being left behind and that “incumbents are just not well-prepared to think about – or haven’t been able to – provide the necessary offerings and models to support that kind of model at this time.”

Under an episodic model, the industry could be transformed. Insurance companies could one day be offering coverage for insuring single journeys, specific people, or timeframes. Customers are “getting more and more comfortable being able to insure things for a short period of time – a ride, a rental home, some of your equipment or things – you might see a real move towards a shortening policy lifecycle in the future,” Ahuja noted.

Such a change would certainly have implications for insurers. “You no longer have the stability or cash flow of knowing that you’re going to have premiums start here and end here in your annual cash flow cycle,” he added.

“What does that mean in terms of how you think about your financial portfolio and how you actually manage that? How do you pool those risks? And what kind of market erosion might take place?”

Aside from episodic insurance, Ahuja also pointed to digital intermediaries, third-party capital, and peer-2-peer (P2P) insurance as models that will change the industry.

“These four, in particular, were what I found most impactful because they truly have the potential to impact the business model fundamentally and how insurance is consumed as opposed to enabling capability that may provide some level of efficiency or revenue generation or loss reduction,” he said.