P2P Insurance the Next Stage in Disintermediation?

By October 29, 2014

Today’s clued-up, connected consumers are calling into question the relevance of old-style business approaches, preferring to make purchasing decisions on the basis of information they have gathered themselves. Web players now therefore seem well-placed to create peer-to-peer (P2P) insurance platforms.

The massive influx of players into the P2P ‘sharing economy’ is mainly due to two independent phenomena. Firstly, the sluggish economic environment is encouraging consumers to make more effort to seek out opportunities and try to get the best out of the services they buy. Price comparison sites are proving particularly popular. Secondly users now place much more trust in the security of transactions conducted over the Internet. Looking back at the difficulties the founders of PayPal initially faced in reassuring customers, attitudes have clearly changed a good deal in the space of just ten years. When it comes to insurance, P2P providers are not aiming to encroach on the areas of major obligatory cover but there are definite opportunities for startups and smaller businesses to offer people a wider range of choices and options for insuring smaller items, like the ubiquitous mobile phone that we carry around with us.  The basis of the insurance profession has always been its ability to aggregate information so as to work out an appropriate premium for policyholders. In the Internet age however, there are plenty of firms around able to gather data and the web giants have proved adept at monetising the information given freely by consumers, recently attaining a level of customer knowledge that the insurance sector would have dreamed about only a few years ago.

The crowd: strength in numbers

P2P insurance models currently divide into two categories depending on how far they continue to rely on traditional insurers to actually cover the risk. For example, Berlin-based Friendsurance and London firm Bought By Many provide for a small amount of risk to be insured P2P and cede the business to traditional insurers from a given threshold upwards. Conversely, before it closed due to a failure to monetise its services, PeerCover offered a system which covered policyholders to the full value of the goods insured.

Uniting a group of consumers in order to obtain lower rates is a trend that innovators like Groupon have recently succeeded in turning into a business model. However, there is nothing new about certain categories of insurance policyholders banding together in order to obtain preferential rates, and the approach taken by Bought By Many – bringing people together under group policies in order to reduce overall servicing costs and the premium charged to each policyholder – is similar but not exactly the same. Bought By Many is essentially a platform where consumers can get together in real time to reduce the average price. Meanwhile Friendsurance, which is only available in Germany, works on the basis of connecting up policyholders to a friends’ network, much as people do with a social network. The advantages include lower administrative costs on the one hand and a perceived lesser risk of fraud on the other. More recently, former actuary Louis de Broglie helped to set up insPeer, a P2P insurance platform, in Paris this year with himself as CEO.   The company has not yet begun to do business but has clearly set out its target market – private vehicle and real estate insurance.

Information: the core of social networks…and insurance

The history of mutual societies, like that of some financial products in our modern era, has been highly influenced by the needs of the farming sector, where the very specific risks call for reliable and specifically tailored insurance cover. Meanwhile the ‘sharing economy’ – with such success stories as KickStarter on the crowdfunding side and Airbnb in the service sector – has come into vogue, and numerous startups have been elbowing their way into various sectors that have hitherto been slow to innovate. The hotel industry lobby has recently been calling for strict enforcement of legislation to combat players who are disrupting the status quo by taking a ‘sharing’ approach to short-term rented accommodation. Unlike tourist sector providers, though, insurers have not traditionally forged such close bonds with policyholders. While customers do often stick with a single insurer in the long term, a great deal of this apparent loyalty is probably down to inertia and the inability of the non-specialist customer to make complex choices in a specialised business. According to insurance sector figures, subscribers to traditional insurance products generally believe that the premiums they pay are not really related to the risks covered.

Since the beginning of the 2000s, data – obtaining as much of it as possible and finding ways to monetise it – has been the central concern and the main asset of the Internet giants. We have seen Facebook moving up the value chain, from its beginnings as a mere university intranet to its position today as a data bank with a huge level of consumer knowledge. Similarly, information has always been one of the pillars of the insurance business. The launch this year of insPeer in France is a clear example of how digital companies are now looking to use their dynamic approach to conquer a slice of traditional service markets.

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