Unleashing the virtual insurance world: A customer's guide to online insurers
- by Moritz Kudermann
- 3 Min
Understanding Digital Insurance Policies: Crucial Information for Policyholders - Consumers' Essential Guide to Virtual Insurance Transactions
From sneakers to broccoli, more and more people aren't just purchasing their everyday essentials in a brick-and-mortar store, but also their insurance policies online. The Association of Insurers reveals that around a fifth of contracts were initiated digitally in 2023, with an increasing number of these contracts being made with pure online insurers or Insurtechs. But are they worthy contenders to traditional insurance providers? Here's what you need to know before diving into the digital insurance realm.
What's an online insurance?
A company doesn't instantly become a digital insurer just because you can sign up for a contract online. Instead, these are companies that primarily or exclusively offer their services digitally. These Insurtechs automate many of their processes, making things easy and efficient for you.
Some Insurtechs act as intermediaries, connecting you with traditional insurance providers like Clark, Wefox, or Check24. On the other hand, companies such as Friday or Lemonade create their own policies and bear the risk, just like traditional insurers.
Perks of digital insurance
Insurtechs aim to reinvent the multi-layered, old-fashioned insurance industry into a more straightforward, user-friendly experience. "So long, paperwork!" declares Frankfurt-based Insurtech Clark on its webpage, replacing tedious paperwork with seamless, one-click registration through apps. The claims process is also digital with access to support via phone or video chat when needed.
So, what about pricing? "Many believe that digital insurance offerings are cheaper than traditional policies," says Philipp Opfermann of the Consumer Advice Centre in North Rhine-Westphalia. But in reality, the prices don't seem to differ significantly.
Setbacks of digital insurance
The main issue with automation is that complex claims cannot be processed by machines. These cases are then handled by humans, which can lead to delays. Insurtechs also don't have branch offices for in-person discussions when issues arise.
Consumer protectionist Opfermann doesn't see longer processing times as a specific disadvantage of digital insurance. Simple claims are processed swiftly, he says. However, he notes that consumers often have to wait for more complex claims to be processed, regardless of whether they opt for digital or traditional insurance.
Another problem comes into play with insurer bankruptcies. This can happen to established companies as well, but the risk is higher for young Insurtech start-ups. In the end of 2024, Berlin digital insurer Element had to file for insolvency, leaving approximately 400,000 customers in search of a new insurance provider.
However, this problem mostly impacts short-term insurances, like liability insurance, which you can easily switch to another provider. For long-term insurances like life, disability, or private health insurance, there is a safety net in case of insolvency; the insurance company is temporarily managed by a guarantee fund.
The best online insurance: A tricky question
With many Insurtech providers having been in business for less than a decade compared to traditional insurance companies with over a century of experience, it's hard to declare a winner. The case of the insolvent insurer Element proves that young providers can disappear from the market as quickly as they emerged, but it doesn't represent the entire industry.
Insurance expert Opfermann also acknowledges, "The true quality of an insurance company is often only noticeable in the event of a claim." Therefore, it's tough to assess the quality of an insurance company before signing a contract. Websites like Finanzfluss or Finanztip can help with reviews and ratings from other customers to guide your decision.
Insurances that suit digital signatures best
Standardized insurances like travel health or bicycle theft insurance can be easily self-managed online as their financial impact and term are generally manageable. And if any issues arise, it's an easy switch for a new provider.
While navigating the pros and cons, it's essential to approach digital insurance with a level head. The rise of Insurtechs is a significant development shaping the future of the insurance industry, making it increasingly important for consumers to stay informed and take deliberate decisions. Your pockets will thank you for it!
- The 'Community policy' could be a crucial aspect in the digital insurance realm, as it might be utilized by Insurtechs to create a more user-friendly and inclusive environment, aligning with their aim to simplify the insurance industry.
- Vocational training programs could be beneficial for individuals seeking careers in the 'technology' sector, particularly as 'business' thrives in the digital insurance industry, with Insurtechs continuously innovating and seeking talented professionals to advance their services.
