Yes, it requires user interaction, and there are limits to how frequently this can be done automatically. So automating this failover is probably not a good idea since often the original flash drive with its original key is still usable, though it might require fixing in some way.
As for where else to do the backup, I have mine backing up to an NTFS Unassigned Device that I can easily plug into my Windows computer. Another possible backup location is to an SMB share (using Unassigned Devices).
You could also use a FAT32 flash drive labelled UNRAID_BK (Unassigned Devices again), and that would be readable from Windows. So, there are solutions available with the existing functionality.