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Peer-to-Peer Insurance – Is What Was Once Old New Again?

 
October 13, 2016

Following months of social media buzz surrounding Lemonade, a ground-up new digital enterprise that promises to reverse the traditional insurance model, the start-up recently launched its website and is offering insurance in the state of New York.

Whats so unique about Lemonade?

It endeavors to offer homeowners and renters insurance at economically attractive pricing; pay claims quickly if not immediately; take a flat rate of 20% of premiums sold; and give back unused premiums (premiums left after all claims paid) to customer-chosen non-profits. Customers elect non-profits to which they will distribute funds and form pools on that basis.

But, you may ask, arent pools (and by extension peer-to-peer) simply an update of long-practiced insurance industry constructs? After all, mutual insurance companies have existed for more than 100 years formed initially to benefit specific groups such as farmers, lumberman, firemen, etc. Mutuals return excess premium (premium left after all claims paid) to their policyholders, similar to the standard peer-to-peer practice. There also are reciprocal exchanges such as USAA and AAA, which bring together like-minded individuals who exchange contracts of indemnity with each other. Premium surplus (excess of premium over claims) is often held for subscribers in subscriber savings accounts.

But there are also important differences in the newer offerings. What are the key differentiators and what is the value for the end consumer (your customer)?

Differentiator 1 Social responsibility. The past 10-20 years have seen the emergence of social responsibility as a key aspect of corporate Americas activities. Whether corporations become B-corps (benefit corporations) as certified by the independent entity B Lab, or alter their legal structures by becoming public benefit corporations, they put a substantial stake in the ground to become entities that value and demonstrate accountability, transparency and purpose for the benefit of the social good. The new players recognize the social responsibility differentiator is becoming an ever-growing important attribute, especially with younger-generation consumers.

Differentiator 2 Business model evolution. One of the key differentiators P2P players such as Friendsurance, Guevara, Peercover and Lemonade represent is the emergence of new or evolved insurance business models. Friendsurance and Guevara are examples of brokered models, where the entity provides the marketplace for clients to form pools, with insurance cover underwritten by participating insurers. Lemonade has emerged as an online P2P carrier, licensed to offer insurance only in the state of New York for now.

All use some form of social media to attract, inform and/or enroll customers into the insurance pools that are a hallmark of their models. Using social media in such as way provides a number of advantages, including access to enhanced data for potential and actual customers, as well as the power of the network in broadening the insurance client base. And perhaps less obvious is the opportunity to build a client base with a new value proposition: protection from loss, yes, but also opening the door to loss avoidance via other digitally driven components. This aspect is both a business model evolution, as well as a digital opportunity for the P2P.

Differentiator 3 Digital Customer Delight. P2P players share another key attribute the ability to tailor a ground-up digital experience for their customers. This is important because it is a limitation for mainstream insurers, which must evolve their customer digital experiences from complex legacy backgrounds with technology that was often different by customer group, and potentially developed and acquired as part of an earlier merger or acquisition. This often results in a complicated, non-integrated set of different customer experiences.

P2P players such as Friendsurance, Guevara and Lemonade have built their customer experiences leveraging social media, bots, machine language and other digital technologies, and are better positioned to evolve the experience from loss indemnification to loss reduction and avoidance. Why? Their ability to introduce and accommodate emerging technologies such as IoT, robotics and artificial intelligence will be less complicated and more capital friendly than it is for legacy insurers.

P2P and other digital insurers are building relationships with consumers who value speed, immediate gratification, connectedness and purpose (i.e. benefiting the greater good). With such a constituency and a lack of formidable, entrenched barriers in IT, they can make a solid business case for advanced digital technologies that help lessen or eliminate loss, and more easily travel the road to implementation.

The P2P players are not simply this years next big thing. They have significant differences that may present them with some competitive advantages in business model, digital customer experience and social responsibility. The next five to 10 years should be very revealing are you positioned strategically as consumers make their choices for the next generation of insurers?

Tom Rubenacker is the property casualty domain lead for Tata Consultancy Services (TCS) in North America. Mr. Rubenacker has 30 years of experience spanning business and technology consulting. He has extensive expertise in underwriting management and operations, rating and policy administration, customer service, and end user helpdesk operations. His consulting expertise spans strategic planning, process reengineering and modeling, IT portfolio assessment, IT blueprinting, project and change management, IT quality assurance, use case modeling, and business architecture.