P2P insurance origination

Traditional insurance requires policyholders to pay premiums, face uncertainty about claims, and often times see surplus amounts paid disappear into the insurers’ pockets. A number of years ago, InsurTech startups realized this conflict dynamic, which originates from insurers betting on the insured not making a claim and the insured betting on making a claim. As a result, these InsurTech startups came up with a solution: Peer-to-Peer (P2P) insuring.

Today’s global access to social networks paves the way for P2P insuring. In P2P insurance, members pool their own resources to cover losses and excess amounts and when less claims are filed than expected, these resources are returned to the members. At the same time, in the case of paid claims exceeding the pooled amount; the P2P network can seek coverage from reinsurers. Another benefit is that when members share the same affinity or are socially acquainted, so the incentive to file fraudulent or unnecessary claims is reduced. This way, conflicts of interest between insurers and those seeking insurance are minimized.

Financial innovation in P2P insurance

Today’s consumers request more than simply paying a premium in return for receiving coverage for certain claims. They want to be able to interact with their insurance providers and receive support based on their personal preferences and experiences. Utilizing current technological advancements, InsurTech companies have introduced tools that lower entry barriers for receiving insurance coverage and costs for policyholders.

The general embrace of concepts like crowdsourcing and social networking enables P2P insurance to gain traction. For example, social networks can be tapped on to determine an individual’s state of employment. Having gained customer and market trust, more advanced technological innovations can be applied. The development of the blockchain technology, for instance, offers a lot of opportunities in the insurance industry as smart contracts can be made on a distributed ledger to automatically determine pay-outs in certain simple, deterministic situations. Companies like Dynamis and aigang are already applying innovative technologies aiming at making insurance seamless and transparent.

P2P insurtech market outlook

Despite the rise of Insurtechs, the insurance market remains obstructed behind high barriers for new market entrants. It is not only a highly regulated market, but insurance companies also have extensive capital requirements. Next to capital requirements, startups in the insurance market often don’t have a solid brand reputation or track record to inspire confidence in their innovative solutions. However, the startups that do overcome entry barriers have a good chance at success due to lower levels of competition.

This can be observed in the current insurance market, where InsurTech companies are already picking away at market share. More established insurance firms should therefore be more proactive about adopting technological innovation and seizing opportunities just like their startup rivals. Visions of near-frictionless insurance operations and possibly even premium-less insurance are the driving forces of InsurTechs in the near future.