The technical principle underlying insurance is based on the pooling of a homogeneous set of risks over a given reference period. When coverage is fragmented into micro-periods activated on demand, the insurer faces a classic adverse selection problem: the policyholder tends to \u201cswitch on\u201d the insurance precisely when the risk is highest. The legal issue is not merely actuarial. It directly concerns pre-contractual information duties and the requirement that the product be appropriate for the needs of the target market identified through the Product Oversight and Governance (POG) process.<\/p>\n
In many jurisdictions, including Portugal, the formation of an insurance contract is subject to specific formalities regarding the proposal, acceptance and commencement of coverage. Insurance activated through an app several times a week multiplies the number of occasions on which a contract is concluded and, with them, the applicable information duties, withdrawal periods and record-keeping obligations necessary to demonstrate that coverage was effectively taken out and accepted before the insured event occurred.<\/p>\n
These models rely on real-time behavioural data: geolocation, telematics and usage patterns. This places underwriting under the direct scrutiny of the GDPR and, increasingly, the AI Act, whenever pricing or risk-acceptance decisions result from automated profiling systems. Insurers will need to be able to justify, in an auditable manner, why a particular usage pattern resulted in a particular premium, reopening the debate on indirect discrimination in insurance pricing.<\/p>\n
From a prudential perspective, products with such short life cycles challenge technical provisioning models and the risk-exposure metrics required under Pillar I of Solvency II. Supervisory authorities will need to determine whether these products should be treated as a variation of traditional insurance or whether they require specific calculation methodologies.<\/p>\n
At European level, there is not yet a specific regulatory regime for pay-per-use insurance. Insurers moving towards this model are, in practice, fitting a new product into legal categories designed for a different reality, with the resulting risk of litigation concerning the precise moment at which coverage begins and ends, as well as increased regulatory exposure in relation to data protection and market conduct.<\/p>\n
For insurers, the challenge is not merely technical or commercial. It is a matter of legal architecture. Before scaling up a pay-per-use product, it is worth mapping, on a contract-by-contract basis, the points at which the business model goes beyond the assumptions underlying the existing legal framework. Commercial innovation is sustainable only when accompanied by careful legal analysis and, whenever necessary, prior dialogue with the supervisory authority.<\/p>\n