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Peer-to-Peer (P2P) Insurance

Last Updated 1/16/2019

Peer-to-peer (P2P) insurance is a new innovation that allows insureds to pool their capital, self-organize, and self-administer their own insurance. The core idea of P2P is that a set of like-minded people with mutual interests group their insurance policies together introducing a sense of control, trust, and transparency while at the same time reducing costs. This new model of insurance combines traditional pooling and sharing of losses with current technology and innovations, providing a product for increasingly savvy consumers who require transparency in an on-demand economy.

The P2P insurance model usually consists of a small group of family members, friends, or individuals with common interests who combine their premiums to insure against risks. When a loss occurs, money from the pool is used to cover the individual. Because each insured is responsible for the entire group’s risk profile and refund, they are motivated to maintain low individual risk to keep costs low for all involved.

While P2P insurance is a potential new disruptor in the insurance market that could transform the industry, it is not necessarily an entirely novel concept. In essence, P2P represents as much a return to the old roots of insurance as a leap forward. Reflecting the very nature of the sharing economy, P2P insurance leverages the latest technological advances in social networking to best apply the model mutual insurance companies have basically used since the early days of insurance. To enable insurance to achieve its original mission, and do what it once did so well, the core idea and mission of P2P insurance is the betterment of the entire community with benefits accruing to all participating members.

The model of P2P insurance can mitigate conflicts that may exist in the traditional centralized insurance structures between insurers and policyholders as their incentives do not always align. In traditional insurance, reserved premiums not paid out in claims are typically held by insurers. However, in P2P insurance—with members pooling their own resources to cover losses—residual funds (excess premiums) from the paid premiums return to the group when a smaller than anticipated number of claims are filed. At the same time, in bad years when losses from claims actually exceed collected premiums, coverage with a reinsurance company is in place to cover the difference. Thus, in P2P insurance, since premiums not needed to pay claims are refunded to the member policyholders, conflicts between insureds and insurers tend to be minimized, if not eliminated.

Lemonade is the first U.S.-based P2P company to officially announce plans to operate as an insurance carrier. Lemonade currently offers renters, condo and homeowners’ insurance in 20 states and Washington D.C. and is working to add additional states shortly. While the P2P model may be relatively new to the U.S., P2P startups such as Friendsurance, PeerCover and Riovic, have emerged in other countries like Germany, New Zealand, the United Kingdom and France since 2010.

A new wave of P2P insurance based on a self-governing business model using blockchain technology has recently emerged. This new P2P insurance model is doing away with traditional premium payment, using instead a digital wallet where every member puts in their premium in an escrow-type account only to be used if a claim is made. In this model, none of the members carry an exposure greater than the amount they put into their digital wallets. If no claims are made all digital wallets keep their money. All payments in this model are done using bitcoin further reducing transaction costs. Teambrella claims to be the first P2P insurer using this model based on bitcoin.

VouchForMe is another InsurTech harnessing blockchain technology. VouchForMe enables insurance clients to share their existing insurance deductibles with their friends and family members. By vouching for the insurance clients, friends and family members guarantee to cover for a part of the deductible that the client has included in his/her insurance policy. This means they will pay for a part of the applied deductible in case of an at fault claim.

As new digital technologies are altering the ways insurers engage with their customers who bring into the market new demands, preferences and behaviors, there may be new alternatives to the 300 year-old traditional insurance structure of centralized risk-pooling. The NAIC continues to closely monitor all new innovations that could potentially disrupt the insurance industry through the Innovation and Technology (EX) Task Force. The Task Force provides a forum for discussion of innovation and technology developments in the insurance sector to provide resources for and educate state insurance regulators on how these developments impact consumer protection, insurer, and producer oversight.

Moreover, to better understand how the emergence of the P2P model and the associated technology is shaping the future of insurance and impacting regulation, the NAIC Center for Insurance Policy and Research (CIPR) hosted an event, Insurance and Technology, during the NAIC Spring 2016 National Meeting. The P2P insurance presentation by Lemonade, as well as the audio from the event, are available to download on the CIPR website.

Committees Active on This Topic

Additional Resources

July 2018, CIPR Key Issue

Swipe Right for On-Demand Insurance
March 2018, CIPR Newsletter

Blockchain Technology
December 2017, CIPR Key Issue

Insurance and Technology
April 2016, CIPR Event Recap

Peer-to-Peer Insurance
April 2016, Ty Sagalow, Chief Insurance Officer, Lemonade Inc.
Presented at the Insurance and Technology CIPR Event

Adapting to the Recent Trends
Ty Sagalow, Chief Insurance Officer, Lemonade Inc. CXO Insights


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