The peer-to-peer (P2P) insurtech movement will not disrupt the insurance industry.


Because P2P insurance start-ups, (or mutual insurance companies as they’ve been called before this most recent rebranding), have existed for over 400 years. There is nothing disruptive about the P2P insurance model.

This doesn’t mean that there won’t be significant and exciting innovation born out of the P2P model which results in a dramatic impact on the insurance incumbents. This is especially in how we view the customer experience.

Before you can swallow this prognostication, it’s prudent to understand the difference between disruption and innovation:

  • Disruption: To change a long established industry in a way that industry incumbents or other tech startups have overlooked.
  • Innovation: The act or process of introducing new ideas, devices, or methods.

In plain language, disruption changes the nature of the game, innovation simply improves the game.

Why does the differentiation between disruption and innovation matter?

Your belief in whether P2P insurtech start-ups will disrupt or simply push innovation, informs how incumbent insurance carriers and their respective agent salesforce prepare for the future.

Disruption results in cataclysmic change.

Innovation requires incremental change.

I’m betting the injection of technology and a focus customer experience, championed by the P2P insurance movement, will force insurance incumbents to adopt the digital innovations already present throughout the greater marketplace.

Thus, improving the efficiency and quality of the insurance industry as a whole.

Here are 3 reasons why…

1) A Mutual Company By Any Other Name…

The P2P insurance model is not revolutionary, it’s not innovative, it’s not even new.

In 1696, the Hand in Hand Fire & Life Insurance Society was founded in London. It was structured as a mutual society, and for 135 years it operated its own fire brigade and played an important part in shaping fire fighting and prevention.

In America the first successful mutual insurance company was founded in 1752 by Benjamin Franklin. It was called the Philadelphia Contributionship for the Insurance of Houses From Loss by Fire, and it remains in business today.

What is P2P insurance?

Friendsurance, a Berlin based Fintech company, founded in 2010 and the first major P2P insurtech player on the world stage, was chartered with the objective of allowing small groups of people with similar insurance, to have a portion of their premium to be paid into a ‘cashback pool.’

This pool is used to pay for smaller claims.  At the end of the year, the balance of the pool is distributed equally to each of the group members.

Friendsurance’s role is to act as a broker to organize primary and stop-loss coverages, utilizing some 60 insurers, and to maintain the individual and group accounts.  The company’s platform helps customers find others in a social media setting to create the connections required.

So, Friendsurance is a broker, using technology to provide quasi-mutual insurance company benefits. Each P2P start-up comes at this model from a slightly different angle, but the story is the same.

Let’s breakdown exactly what a P2P insurance looks like using an article from Kyle Nakatsuji, principal at American Family Ventures, titled, “Is P2P a Realistic Alternative?

p2p insurtech

Replace, “Peer Group,” with “Policyholder” and you’re looking at a mutual insurance company.

“The insurance system, while not without its flaws, has functioned for some time and has regulations and processes in place to mitigate adversarial circumstances. In addition, if conflict exists in the insurer/insured relationship, it likely remains present in the P2P model but shifts from customer/carrier to peer/peer.” ~ Kyle Nakatsuji

It’s tough to disrupt an industry with a business model that already exists.

2) Belief Does Not Equal Reality

Insurance industry incumbents have become complacent.

[tweet_box design=”default” float=”none” excerpt=”Incumbent complacency has created opportunities for P2P #insurtech start-ups.”]Complacency has created opportunity for technology-driven upstarts like Lemonade, InsPeer and Guevara.[/tweet_box]

While complacency may have created the void insurtech start-ups are hoping to fill, it doesn’t mean an industry with over three centuries of experience, is completely out touch.

There is a reason the insurance industry hasn’t been disrupted by Silicon Valley yet. The model isn’t broke. Could it use a tune up? Maybe a new paint job? Certainly.

Just don’t forget, the local town folk aren’t rallying together to help you rebuild your house after a fire. The only people who are going to help you rebuild after a loss work in the insurance industry.

But maybe this isn’t where insurtech start-ups are looking to make their disruption?

Take this interview with InsPeer founders, Louis de Broglie (LdB) and Emmanuelle Mury (EM) by BlueDun:

Q:   At its core, insurance all about pooling of risks. Are you simply boiling the mutual insurance company down to its essence, removing a lot of overhead, and passing the savings onto consumers?

EM:   Yes, completely.

LdB:   But mutual companies are so big that you don’t feel a sense of community. The idea is to use technology to help you leverage your local community – with all its positive aspects. So it is true that we are coming back to the original idea of the mutual company.

The peer-to-peer advantage is the fact that you band together with your community which creates more virtuous behaviour – a lower claims rate for instance. This can only be possible if people have a sense of community.

Let’s get this straight…

All you need to do is build in a, “sense of community,” and insurance consumers are obliged to a more “virtuous behaviour,” yielding lower claim rates.

Wait, what?!

The hubris and naivete of this sentiment is astounding. Letting go the socioeconomic implications of building your own community-based risk pool and inherent discrimination and potential for redlining associated with such, what does a “sense of community” have to do with claims occurrence?

InsPeer is relying on a perceived sense of moral obligation from community risk pool members to limit small claims notifications. Even as an arm-chair economist, this philosophy seems to fly in the face of human instinct.

Bertrand Robert makes this point in his LinkedIn article, Sharing Economy and P2P Insurance, Myth and Reality:

P2P insurance, as a solidarity backed pooling, lies on expected lower claims notification and fraud.

P2P means that members of a same group would refrain from notifying small claims in order not to add burden to the pool. Not to mention that with some of those P2P vehicles, members could be expelled if deemed by other members as sharing too much of their claims. Solidarity must have limits!

Maybe self-retention of claims works with people with strong ethics, but what proportion do they represent in a context where fraud is reported to be significant in all lines of business? We can be assured that less virtuous people would never join the movement. Or more simply, the vast majority that considers they are better risks than their neighbors, therefore believe they would lose in the bargain.

Most insurance buyers can’t be bothered take ownership over their own insurance risk portfolio. Now we’re asking them to assess the risk potential of complete strangers for membership in their peer-to-peer insurance community?

Building an insurance company with the methodology of a social network makes a great headline. But I’m not sure mainstream America is ready to have their insurance claim history broadcast to friends, family and strangers.

3) True P2P Model Impact Will Only Come From Mainstream Adoption

There is no doubt the typical insurance consumer is disenfranchised by traditional insurance carriers.


Because at some point in their life, either they themselves or someone they know, has had a claim denied.

No matter who’s fault or what the reason, when a claim is denied, it’s the carrier’s fault (in the eye of public perception).

So when P2P insurance companies hit the marketplace spouting rhetoric of transparency, honesty and lower premiums, it’s understandable that people would jump to support the idea.

It’s easy to talk transformation when you’ve never had to deny a claim.

It’s only a matter of time.

Let’s examine P2P insurtech hype a little further…

The Gartner Hype Cycle is a branded graphical presentation developed and used by American Information Technology (IT) research and advisory firm Gartner for representing the maturity, adoption and social application of specific technologies.

Innovation Hype Cycle


In his article, The Hype Cycle of Insurance Disruption, Sam Gilbert of Brought By Many, explains why the P2P insurance model has already moved past the “Peak of Inflated Expectations,” and is now trending down towards the “Trough of Disillusionment.”

This positioning may seem a bit premature to Americans (as Lemonade, our first P2P insurance company has only recently hit the scene). However, cracks in the P2P insurance armor may be more visible to those following the struggles of early P2P insurtech start-ups in Europe.

As Mr. Gilbert puts it:

“On the other side of the peak of inflated expectations, there is a deepening malaise around peer-to-peer (P2P) insurance. New York’s Lemonade may have just raised a $13 million seed round, but it has a long hard road ahead. The company’s somewhat hubristic claim to be the world’s first P2P insurer suggests executives aren’t aware of Friendsurance or Guevara and the challenges these admirable businesses have faced in creating a value proposition that consumers can understand and buy into.”

insurance insurtech innovation curve

It’s one thing to attract the interest of TechCrunch reporters by sniping at an industry filled with technology laggards. It’s another thing completely, surviving the wave of pessimism and negativity that comes with running a profitable insurance company.

There is currently a large gap between the ideology of peer-to-peer insurance and it’s scaled execution.

The Rub

As more and more insurtech start-ups receive sizeable investments from VC firms, the media attention alone will undoubtedly be a much needed cage rattling for incumbents.

Even in the brief six-year history of Friendsurance, eyes have been opened to the need for a great emphasis on technology utilization and improved customer experience. These are positive impacts on the insurance industry and may ultimately be the P2P insurance movement legacy.

But make no mistake, peer-to-peer insurance will not be a disruption, but rather a series of needed innovations to an otherwise complacent industry.

Thank you,

Ryan Hanley

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Additional Reference Material

image credit. Unsplash.

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