At the moment, there is so much to talk about peer to peer insurance (P2P). It got a lot of hype because of the unveiling of Lemonade, a so-called insurer in the United States, in September.
But what is this P2P insurance that people are talking about?
If we observe keenly, P2P is a well-established theory. It can be demarcated as the matching of lenders and borrowers in a market, without the immersion of an institutional, risk-bearing balance sheet. Apart from this, for an insurance audience is that this matching does not generally have a social element.
It is close to unmanageable to do away with the institutional balance sheet in insurance because of unanticipated enormous losses. After all, even the prevalent insurers buy access to third-party risk bearing balance sheets. As a result, P2P insurance is said to be unsolidified, wherein startups have very different intentions. In most of the models, it is titled as ‘genuine P2P insurance’, a clearness which is pooled with incentives for consumers to abate all the claims.
To know more, explore some of the flavors for P2P insurance given below:
- Genuine P2P insurance – Paradoxically, startups that have the ardent to provide the P2P insurance are not insurance businesses but they are unfettered companies. They are organized in such a way wherein risk-sharing syndicates at a place where members agree to compensate. They are unequivocal about the fact that they are not insurers and cannot assure a full indemnity.
- Micro mutuality – It is a mechanism, wherein sub-sets of risk are endorsed by individuals with negligible institutional balance sheet participation. This is adjoined that insurance startups get to P2P insurance because insurance companies have to meet all privileges and hence need a backup cover.
- Behavior control – Some of the companies use group perceptions to impact customer behavior which means crafting inducements for customers not to make false or hyperbolic claims. The reward is an end-of-year surplus that is dispersed normally back to the customer.
Wrapping it up, here we get an imprint that any insurance business that has the word ‘group’ in its advertising which is put in the P2P box of infographics. They do not have any component of micro-mutuality and do not even try to impact conduct to diminish its claims.