Hi, my name is Adam Stewart, Debt Collection Expert and owner of ADC Legal Litigation Lawyers. This week, I am keen to start a discussion about peer-to-peer insurance. It’s an exciting area of insurance which could explode in the next few years.
What is Peer-to-Peer Insurance?
Peer-to-peer insurance aims to make insurance cheaper by allowing people to form groups online, without having to visit bricks and mortar stores. The group formed then provides these insured people with an incentive of a refund on their money paid, depending on the number of claims made against the group. The incentive is that they stand to receive up to 40 percent of their insurance premium refunded, if no claims are made against the group. It has the potential to make insurance less expensive.
Why Peer-to-Peer Insurance?
According to Wikipedia, the goal of peer-to-peer insurance is to form brokers instead of companies. In this model, several companies form online groups, not at all unlike social media groups such as Facebook. A group fund is formed; members of this group are insurers with the same type of products–such as electronics, fire, house or life.
Let us say a person insured by a member of this group submits a claim. Minor damages are paid to the insured out of this fund. For claims above the deductible the regular insurer is summoned to pay. If a policyholder goes a certain length of time without a claim, he or she will get her share of the premium refunded from the pool.
Peer-to-Peer Insurance Companies
In 2010, Germany tried the concept of peer-to-peer insurance when huge insurance companies banded together, such as R & V, Horizons Ventures, and European Regional Development Fund. The reason for this was the high number of claims, including some that were of questionable honesty. Thus Friendsurance was born.
The model has proven quite successful. Although it is only available in Germany right now, Friendsurance operates in that market alone with about 60 domestic insurance partners. If you get through the year without submitting a claim, you will get back 40 percent of what you paid in premiums. Thus the incentive is to remain honest and not to file frivolous claims. This model was found to make insurance less expensive for everyone, including the claims processors, not to mention the customer.
On the heels of the success of Friendsurance, came the creation of another peer-to-peer insurance group, known as Lemonade. The name comes from the concept of making the idea of insurance as “fresh as lemonade.”
New York- based Lemonade is in its infancy. Little detail is known about the organization or its business model. But unlike its German counterpart, Lemonade is trying to eliminate dishonesty by researching how to influence people to be more honest. For instance, one has created a policy of signing paperwork in which insurance candidates, or insured persons sign the necessary paperwork at the top of the page instead of the bottom.
It is too early to tell whether the Lemonade venture is to enjoy the success of that has characterized by Friendsurance. But if it does, it’s likely that more insurance peer-to-peer companies will be forming just like it. And perhaps a new era will be born. It will also be interesting to see if any Australian operators get in on their own peer-to-peer brand, given the apparent success of Friendsurance.
What are your thoughts?