The future of insurance: embedded, parametric, and on-demand

The policy you didn't notice buying

The last time you booked a flight on a card that offers travel insurance, you probably didn't call an insurer. You didn't fill out an application. You might not have even registered that you were covered until you checked your card benefits for something else.

That experience — coverage appearing at the exact moment of risk, woven invisibly into a product you were already buying — is what the insurance industry calls embedded insurance. And right now, it is one of three structural shifts rewriting how insurance works, who sells it, and how fast it pays out.

The other two are parametric insurance — which triggers payouts on predefined events rather than assessed damages — and on-demand, usage-based insurance — which prices coverage based on what you actually do, not demographic proxies. Together, these models represent the most significant disruption to insurance distribution and design since the invention of actuarial tables. Understanding how each works, where each falls short, and what each means for you as a consumer is increasingly useful knowledge.

Embedded insurance: coverage at the point of need

Traditional insurance distribution is a bit backwards. A broker or comparison site presents options, you pick one, you pay, and you hope you never need it. The whole interaction is front-loaded — you have to decide about a future risk at a moment when it feels abstract.

Embedded insurance inverts this. Instead of buying coverage separately, it appears inside another product or transaction — a car purchase, a hotel booking, a fintech app account. The moment of risk is the moment of purchase.

The numbers behind this shift are enormous. According to Mordor Intelligence, the embedded insurance market is projected to grow from roughly $116 billion in gross written premiums in 2025 to over $233 billion by 2029. European platforms like Qover have grown market share significantly by partnering with digital banks and neobanks across the continent, enabling insurers to reach customers who would never have sought out a policy directly.

Tesla and Toyota now offer insurance embedded into the car purchase itself. Eighty-one percent of Millennials and Gen Z say they want the option to buy auto insurance as part of buying a car, according to a 2024 Polly study — and 83% of those cohorts reported already having bought some form of embedded insurance with a recent purchase.

What's genuinely useful here: embedded insurance reaches people who are underinsured not because they've calculated the risk and decided to self-insure, but because the friction of buying coverage was enough to put them off. The coverage that appears inside a fintech app or at a car dealership's checkout is being bought by people who would not have sought it out otherwise. That is a real benefit.

Where to stay sharp: the convenience of embedded insurance also means less comparison shopping and lower scrutiny of what the coverage actually says. A policy embedded in a checkout flow is not designed to be read carefully — it's designed to be accepted. How to actually read your insurance policy and spot gaps is worth doing even for coverage that appeared automatically, because "I didn't know it excluded that" is no protection when you need to make a claim.

Parametric insurance: paying on the event, not the loss

The traditional insurance claim is not a great experience. You have a loss, you notify the insurer, an adjuster assesses the damage, disputes happen about valuation, a payment eventually arrives. For major disasters — hurricanes, floods, drought — this process can take months, by which point a farming household, a hotel, or a small business may have already collapsed.

Parametric insurance eliminates this chain entirely. Instead of paying based on assessed damage, it pays based on a predefined trigger: wind speed exceeds X, rainfall drops below Y, an earthquake reaches magnitude Z. When the trigger fires, the payout happens automatically — typically within 10 to 30 days, compared to months for conventional claims.

The global parametric market was valued at around $17.6 billion in 2025 and is projected to reach $46 billion by 2035, according to SNS Insider. The applications are broadening fast. Swiss Re's agricultural parametric platform uses satellite data to monitor individual farm-level crop conditions and pay out within days of qualifying weather. Parametrix paid cloud outage claims within two weeks of an AWS incident in 2025, using service-level agreement data as the parametric trigger. A music festival in the US bought a policy tied to the closure of a nearby airport, recognising that flight disruptions would wipe out attendance revenue even if the venue itself was undamaged.

The World Economic Forum noted in early 2025 that parametric coverage has been used for income losses for outdoor workers during heat waves, reef rehabilitation after hurricanes, and reforestation after wildfires. These are not niche experiments — Swiss Re, Aon, Allianz Climate, and Munich Re are all scaling parametric products.

The critical limitation: basis risk. If your policy pays out when rainfall drops below 50mm but your actual crop damage kicks in at 55mm, you receive nothing. The trigger is objective and transparent — that's the product's selling point — but objectivity doesn't mean your specific loss is covered. The coverage gap between the trigger and your actual situation is called basis risk, and it is the main reason parametric insurance is better positioned as a complement to conventional coverage than a wholesale replacement. Fast liquidity when disaster strikes; traditional indemnity for the complex, long-tail recovery.

On-demand and usage-based insurance: pricing the actual risk

Standard auto insurance prices you as a statistical category: age, postcode, car type, years of licence. Two people with identical profiles can have dramatically different risk levels based on how they actually drive. Traditional models cannot see this — they use demographics as proxies for behaviour because they have no other data.

Usage-based insurance (UBI) replaces proxies with reality. A telematics device — either an OBD-II plug-in, a smartphone app, or a chip built into the car — records when, where, and how you drive. Braking patterns, speed, time of day, and miles covered feed into a real-time risk profile. Safe drivers can save 30–40% on premiums, and according to a J.D. Power study, over 50% of drivers under 35 say they would switch insurers to access a UBI programme.

The global usage-based insurance market was valued at $33.47 billion in 2025, growing toward $122 billion by 2034 at a 15.9% CAGR, according to Straits Research. In Europe — which accounted for 40% of the global automotive UBI market in 2025 — the EU's eCall mandate for connected cars has accelerated adoption, particularly in Italy and the UK. Around 20 million of the world's 875 million motor insurance policies are now usage-based, according to industry analysis, with smartphone-based solutions expanding access without requiring expensive hardware.

The same logic extends beyond cars. Pay-per-day travel insurance, hourly equipment coverage for tradespeople, and micro-policies tied to single activities are all variations on the same idea: you pay for coverage only when exposure exists.

The privacy trade-off is real. UBI requires ongoing data sharing. The data that lets an insurer reward you for safe driving at off-peak hours is also data about where you drive, when, and how often. Privacy concerns remain the most frequently cited barrier to adoption, and they are not irrational — insurers have strong commercial incentives to collect more data than they strictly need for underwriting. Knowing what data your UBI programme actually collects, how long it is retained, and whether it can be shared with third parties is worth the five minutes it takes to check the terms. The 5 most common insurance mistakes that could ruin you includes the habit of agreeing to terms without reading them — UBI agreements deserve the same scrutiny as any other policy document.

What the insurance protection gap means for all three

Here is the context that makes these innovations urgent rather than merely interesting. Aon estimated that in the first half of 2025 alone, insured natural catastrophe losses reached $107 billion globally against total economic losses of $162 billion. That $55 billion gap — losses that occurred but were uninsured — is part of a widening structural problem. Swiss Re's Resilience Index puts the total global climate protection gap at potentially over $1.8 trillion.

Traditional indemnity insurance is retreating from the highest-risk areas. Parts of California and Florida have been described as emerging "insurance deserts" — regions where coverage is becoming unaffordable or simply unavailable. Warren Buffett, in his 2025 shareholder letter, acknowledged the prospect of "a truly staggering insurance loss" from climate change and noted that insurance pricing increased broadly through 2024. The G20's November 2025 Disaster Risk Reduction Working Group explicitly called for scaling up parametric insurance alongside catastrophe bonds to address this gap.

All three innovations — embedded, parametric, on-demand — are partly answers to the same problem: how do you provide financially useful coverage in a world where risks are becoming harder and more expensive to insure conventionally? Embedded insurance reaches the underinsured by removing friction. Parametric insurance covers the high-severity, fast-developing risks where traditional claims processes are too slow. Usage-based insurance prices risk more accurately, letting safe individuals access coverage that demographics alone would have made expensive.

None of these is the whole answer. Basis risk in parametric products, data privacy concerns in UBI, and the fine-print problem in embedded coverage are all real limitations that haven't been resolved. A world with better insurance infrastructure is still a world where you need to understand what you own, what it covers, and what it doesn't — skills that remain as relevant as ever. See our insurance explained simply guide for a grounding in the basics if you want context for evaluating these newer models.

What to watch

Three specific developments are worth tracking in 2025 and beyond:

Hybrid parametric products — Ki Insurance now tracks supply chains via GPS to trigger rapid payouts for disruption events while incorporating actual loss data. This hybrid approach addresses basis risk by combining the speed of parametric triggers with shipment-specific loss verification. More carriers are moving in this direction.

Regulatory response to embedded disclosure — When insurance is embedded in a checkout, the quality and timing of disclosure varies significantly across markets. The EU's updated retail investment framework includes provisions on this; similar moves in insurance regulation will shape whether embedded products genuinely serve consumers or primarily serve conversion rates.

UBI and the gig economy — Gig workers who use personal vehicles commercially face a coverage gap that traditional annual policies weren't designed for. Pay-per-use and task-specific micro-policies are emerging to fill this, but the regulatory frameworks in most European markets are still adapting.

The insurance industry has been notoriously resistant to structural change — the last major disruption was the rise of comparison websites in the early 2000s. What is different now is that the disruption is coming from outside insurance: from car manufacturers, fintech platforms, satellite data companies, and tech firms with established customer relationships and better data than most insurers have ever had. Whether that results in better coverage at fairer prices for consumers, or simply in coverage that is easier to sell, depends partly on regulation and partly on whether consumers develop enough fluency to tell the difference.