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What Insurance Producers Need to Know About P2P Insurance

By April 13, 2017December 20th, 2019Blog, Insurance Producers

shutterstock_557424001.jpgA new term in the P&C insurance industry refers to peer-to-peer (P2P) insurance, which is defined by the National Association of Insurance Commissioners (NAIC) as:

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.

P2P got its start when financial services companies used social technologies to connect borrowers with available lenders directly rather than using a bank. Tech start-ups like Lemonade and Uvamo have begun applying this technology to the insurance industry. Although it is not regulated currently, the NAIC thinks the same rules should apply here as they do to other insurance companies, and it should exist within current state framework.

5 Key Points You Should Know About P2P

With this new potential player in the game, top P&C Insurance producers need to keep in mind the following:

  1. The Concept is New
    In the United States, the concept of P2P is just getting off the ground. Although it’s had some success in other countries, the public still has to accept it as an avenue for insurance acquisition. The freshness in the market makes it appear a less reliable resource than traditional insurance agencies and producers.
  2. The Service Delivers Quick Results
    With traditional insurance agencies, customers call an agent, discuss the coverage needed, and provide information about the item or property needing coverage. They then wait to receive a quote. With a P2P company such as Lemonade, however, you can receive a quote in less than three minutes through an app on your phone with coverage that begins the same day you pay.
  3. Limited Risk Involved
    Although the business model is new and some regulations do not apply yet, little to no risk is involved when trying P2P insurance because the startups are must comply with regulations that require reserve funds sufficient to pay anticipated claims.
  4. Coverage Can Be Inexpensive
    According to the NAIC, some of the success of the P2P model in United Kingdom, Germany, and China is a result of low premiums. Lemonade has promised renters insurance for “$5 and up” compared to the standard $20 a month in the New York area. Such competitive premiums certainly lean in favor of this new concept.
  5. Profits from Coverage Is Shared
    An advantage for participants in P2P coverage includes dividends paid out to the “social pool” if claims are not filed. As a result, trust is built between the insurer and the insured, and the insured has increased motivation to maintain coverage through that policy.

Although it’s not a burgeoning competitor yet, P2P insurance should remain under your watchful eye as an insurance producer. What has yet to be seen, however, is the ability of P2P companies to handle challenges to claims, which could become a differentiator for producers in the future. Remain on top of this and other trends by subscribing to our blog updates or following us on social media.

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