The Next Frontier: Peer to Peer Insurance

On June 12, 2018, Butler Rubin co-sponsored an Association of Insurance and Reinsurance Run-Off Companies’ (AIRROC) Education Day at the American Bar Association. Butler Rubin partners Karen Borg and Teresa Snider, along with Arlene Kern, Senior Vice President, Munich Reinsurance America, Inc., provided an overview of the peer-to-peer insurance model, identification of the potential pitfalls in implementation, and discussion of real-world successes and failures.

Peer-to-peer insurance, an offshoot of the sharing economy, allows insureds to pool their capital, self-organize, and self-administer their own insurance. The goal of P2P insurance is to have a set of like-minded people with mutual interests group their insurance policies together to gain control, trust and transparency while reducing costs. Some brokers and insurers have used the P2P concept to structure insurance that promises quicker claim payments, rewards for low claim activity including the potential return of premium, along with a corresponding reduction in claim costs for the insurer. The model has been used in a number of personal lines products including car insurance, homeowners insurance, and renters insurance, and legal expenses.

Lemonade, the first U.S.-based insurer that planned to operate as a peer-to-peer, was unable to do so because U.S. regulators consider the return of premium feature as a rebate. As a result, Lemonade operates more as a mutual or captive and directs unused premium to charities instead of returning premium to the customer. Despite these hurdles, Lemonade garnered significant attention and attracted an impressive line-up of reinsurers. With only 18 months in operation, it is still too early to determine the impact Lemonade will have on the insurance industry. We have already seen several start-ups similar to Lemonade attempt to enter the market.

The panel also provided an overview of peer-to-peer insurers outside the U.S., focusing on lessons learned from some early failures as well as providing examples of what seems to be working and what to look for in the future. As peer-to-peer and similar counterparts in the U.S. continue to develop, we are seeing the use of artificial intelligence in the claims process, newer, faster, and more interactive technology, and the use of digital wallets and bitcoin.

Peer-to-Peer Insurance: P2P Pressure AIRROC presentation