Insurance on demand is an insurance service that provides clients with insurance protection when they need, i.e. only episodic rather than on 24/7 basis as typically provided by traditional insurers clients can purchase an insurance for one single flight rather than a longer-lasting travel insurance plan. In July 2007, The Federal Trade Commission released a report presenting the results of a study concerning credit-based insurance scores in automobile insurance. The study found that these scores are effective predictors of risk. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.
The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining. It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination. This basic principle of insurance must be followed if insurance companies are to remain solvent.
The rationale for the differential treatment goes to the heart of the risk a life insurer takes. Old people are likely to die sooner than young people, so the risk of loss is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently from younger people.
This article needs to be updated. Please update this article to reflect recent events or newly available information. New assurance products can now be protected from copying with a business method patent in the United States. Thus, "discrimination" against potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. Independent inventors account for 70% of the new U.S. patent applications in this area. Early versions were independently invented and patented by a major US auto insurance company, Progressive Auto Insurance and a Spanish independent inventor. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
A recent example of a new insurance product that is patented is Usage Based auto insurance. Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The rate at which patents have been issued has steadily risen from 15 in 2002 to 44 in 2006. There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The first insurance patent to be granted was including another example of an application posted "risk assessment company". Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.