We know you can share your car, your house, and just about anything else you want using an app on your phone – so why not your insurance policy?

Peer-to-peer (P2P) insurance takes the concept of insurance back to its roots; to mutuality in the sharing of losses. It bypasses the primary insurance market to try and eliminate the unpopular aspects of the insurance industry: high costs, delays in claims processing, and a lack of trust between the insured and the insurer. A recent report by global consulting firm Deloitte identified emerging peer-to-peer insurance groups as easy to imagine becoming ubiquitous.

Friends with benefits

Friendsurance, the first P2P InsurTech start-up launched in Germany back in 2010. Friendsurance is a brokerage which allows people to link up using social media to pool their insurance premiums. Co-founder Tim Kunde says the model,

was inspired by how insurance began originally, when people in small family or village community events came together to support each other in damage events. That was simple and efficient, but the extent of coverage was limited. Today, big insurance companies can cover claims of all amounts. But administration, marketing and fraud inflate costs.’

Friendsurance has partnered with sixty traditional insurers to cover the costs of large claims, while each pooled group’s premium is used to pay out their small claims and provide an annual no-claims reward.

Over the pond, InsurTech start-up Lemonade recently launched in New York, providing P2P property and casualty insurance with a twist. Their business model – which they claim will transform the very model of insurance – works like this: they take a fixed 20% fee out of the group’s premiums to cover their own costs, pay reinsurance from top tier global reinsurance partners including Lloyd’s of London, then use the rest to pay the group’s claims. Any leftover money each year is given back to a cause chosen by the group, a feature unique to Lemonade called “Giveback”.

Who benefits from P2P insurance?

Everyone could potentially be better off if individuals pooled premiums with friends, family or their wider social network. The P2P structure provides both a social and a financial impetus to take a more responsible attitude to risk-taking. This removes the perceived conflict between insurer and insured, and also offers the potential for lower premiums and shared reward.

What’s next?

The next phase in the evolution of P2P insurance will involve blockchain technology and smart contracts to provide a value-added product which no longer relies on manual underwriting and claims handling processes. Take Dynamis, an Insurtech blockchain start-up, which is currently in the process of developing P2P unemployment insurance using data sourced from the insured’s social media network, using platforms like LinkedIn to verify their identity and employment status. A smart contract automates the underwriting process and other policyholders act as claims handlers, evaluating whether a claim is within the scope of the policy.

P2P models make it clear: insurers no longer have a monopoly on the business of risk. If the insurance industry doesn’t disrupt itself, then something else will. It seems blockchain, smart contracts and P2P models are just the beginning of the insurance revolution.

Thank you for following our series on the sharing economy. We hope you have enjoyed a glimpse into the future of the insurance industry.