8 ms·

Peer-to-Peer Insurance

57 points by tmlee 11y ago

jxm262 11y ago
I would love to see some form of this concept implemented here in the US. Does anyone know of any startups trying to work on this? I wonder what some of the larger obstacles are from having this created.
- jw121 11y ago
  I am involved in a startup utilizing this model for auto insurance http://www.jointly.co http://www.jointly.co . Happy to answer any questions
dtparr 11y ago
How does this differ from a reciprocal inter-insurance exchange[0] like USAA? [0] - https://en.wikipedia.org/wiki/Reciprocal_inter-insurance_exchange https://en.wikipedia.org/wiki/Reciprocal_inter-insurance_exc...
richmarr 11y ago
As a founder of a "peer-to-peer" insurance business I'm not a huge fan of this wiki article as it makes a lot of incorrect generalisations. > In today's peer-to-peer models, insurance policyholders form small groups online. A part of the insurance premiums paid flow into a group fund, the other part to the insurer. In a broker-based model this might be true, but you may also be regulated as an insurer, or have a commercial relationship with a regulated insurer. > For claims above the deductible limit the regular insurer is called upon. Or the re-insurer, depending on whether the business deals with the underwriters or goes directly to re-insurance. > The only requirement is that all group members must have the same type of insurance Not necessarily. In fact ideally not. There are significant savings to be made by leveraging an existing float rather than having separate pots, and the social density of your group becomes sparse if you can only insure your ferret with other ferret fanciers. > The providers are financed through brokerage commissions of insurance companies In some models. Others not so much. As discussed above, dealing with the underwriters isn't the only way to run this kind of business. Also "peer-to-peer" is a misleading name in some cases. Crowdsourced might fit better.
- rafamvc 11y ago
  What is the name of your company?
  - paulhart 11y ago
    LMLAHHNPFY (Let me look at his Hacker News profile for you)... and click one extra link. https://heyguevara.com/ https://heyguevara.com/
    - jw121 11y ago
      richmarr makes some great points on this. I am involved in a similar model launching very shortly in the US; http://www.jointly.co http://www.jointly.co Im happy to answer any related questions
- a_c_s 11y ago
  Is there a better introductory article you can recommend?
  - richmarr 11y ago
    Unfortunately I can't think of one. Aside from a high regulatory barrier and the significant capital investment required, another reason the insurance industry has resisted serious disruption for so long is that a lot of the way things work are hidden behind closed doors, jargon, based on who you know in the industry. In the UK at least, even the pseudo-standard industry APIs they use (based on EDI, EDIFACT to be specific) are hidden behind a licencing organisation (Polaris) owned by the ABI (the industry body) that charges per transaction. It's a cartel. If it were in the future I'd describe it as dystopian. In the US they use X12, which is an XML-based version of EDI, which was published publicly by ANSI at least.
- tixocloud 11y ago
  If I understand it correctly from what your company's website is doing, essentially, you're leveraging the fact that good drivers tend to know good drivers and there could be a social pressure to not affect the group's members. The function of your company would be similar to that of the traditional insurer except all of the premiums go to the pool for claims and admin instead of also having to share it with shareholders/investors. What I'm curious is what happens when claims are more than what's already in the pool? My assumption would be that premiums would have to go up to cover the loss so you're banking on the fact that by group selection, claims will be less than the average. And in the event that claims are more than the average, there's probably insurance taken out on that.
peter303 11y ago
How does this differ from long-existing "mutual" insurance companies? A policy holder essentially owns a a share in the insurance company. Peer-to-peer automates this on the web.
- notahacker 11y ago
  I'm under the impression the p2p insurance schemes are supposed to consist of small pools of peers supposedly closely-associated enough to be willing to evaluate each others' risks, whereas the mutuals tend to pool risk across larger groups and differ from other insurers only in that they share the profits with their policyholders. I suspect in practice the larger, more diverse pool of risks and knowledge of professional underwriters at conventional insurers (mutual or otherwise) will trump the "I know X, Y and Z are very good at looking after their possessions" knowledge of the P2Ps, but it looks like the P2P schemes tend to back up the p2p scheme with a traditional insurance policy (with a relatively high excess), so actually the p2p scheme is only underwriting a portion of the overall insured risk. Theoretically you'd then get the benefit of the underwriters' ability to assess and cover expensive and idiosyncratic risks and your own better position to assess your peers' behaviour.
lhh 11y ago
Also known as "mutual insurance", which has existed for centuries. Or am I missing something?
- ucaetano 11y ago
  Yeah, p2p is similar to p2p lending, which is not exactly a mutual credit union. The difference is the social factor which means they'll help each other, but also that they'll trust each other. Material insurance (where you're insuring a certain $ amount) works because people have utility curves that justify it: the utility of losing 1M is much higher than 10 the utility of losing 100k. So for p2p, 10 people can buy just 5 insurance contracts and distribute the rest of the risk amongst themselves.
roymurdock 11y ago
This would be interesting to me if I could put together a small pool of say ~5 friends of the same age (22) and health (good). If everyone did this, health insurance rates would drop drastically for pools of young, healthy individuals and rise drastically for the old and the sick. Which somewhat defeats the point of insurance - spreading risk over large, heterogeneous portions of the population.
- djb_hackernews 11y ago
  And what happens if one of your 5 friends is diagnosed with an incurable but expensively treatable illness? Do you kick them out? Do you increase the premiums? Do you invite more people in to the pool?
  - roymurdock 11y ago
    It depends on how you design the contract. You might have included a clause where you can release a member from the pool for a high one-time cost from each of the other members. At the end of the day, you would undoubtedly be liable to pay in one form or another for a portion of those treatments, unless the friend felt bad and voluntarily left the insurance group. Insurance among friends would be weird, mixing emotional and purely mathematical calculations.
    - mawburn 11y ago
      A single trip to the ER with a serious, but non-life threatening, injury could easily cost more than any 2 members of your group make in an entire year.
      - JoeAltmaier 11y ago
        So its a crap shoot - your small group is very likely to be cheaper, 99% of the time. The only important thing is, can your group actually support a real medical emergency at full cost? That's the only reason to join the group after all. When participating in a larger insurance group, these same costs are born solely by insurance premiums. But the costs are not the same - big insurance companies have negotiated lower prices across the board. Your group cannot. I see p2p insurance as a total loss, because in time of need they cannot possibly pay.
Animats 11y ago
That article needs work, and lacks historical context. The first such organization was the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, established by Benj. Franklin in 1752. They're still in business.[1] Originally, they sold permanent fire insurance. You paid premiums for some number of years, and were then paid up for the life of the building. The building can only burn down once, after all. [1] http://www.contributionship.com/ http://www.contributionship.com/
- prawn 11y ago
  You could add your edit and relevant link to the Wikipedia page?
mbrameld 11y ago
This is how USAA got started as well. A group of 25 US Army officers got together back in 1922 to insure their vehicles. They're one of the better insurers these days if you're eligible for their services.
z3t4 11y ago
You still need a ton of statistics and a big enough pool to make it reliable. Then you will need staff to handle applications, support and abuse ...

57 points by tmlee 11y ago

I would love to see some form of this concept implemented here in the US. Does anyone know of any startups trying to work on this? I wonder what some of the larger obstacles are from having this created.

jw121 11y ago
I am involved in a startup utilizing this model for auto insurance http://www.jointly.co http://www.jointly.co . Happy to answer any questions

dtparr 11y ago

How does this differ from a reciprocal inter-insurance exchange[0] like USAA? [0] - https://en.wikipedia.org/wiki/Reciprocal_inter-insurance_exchange https://en.wikipedia.org/wiki/Reciprocal_inter-insurance_exc...

richmarr 11y ago

As a founder of a "peer-to-peer" insurance business I'm not a huge fan of this wiki article as it makes a lot of incorrect generalisations. > In today's peer-to-peer models, insurance policyholders form small groups online. A part of the insurance premiums paid flow into a group fund, the other part to the insurer. In a broker-based model this might be true, but you may also be regulated as an insurer, or have a commercial relationship with a regulated insurer. > For claims above the deductible limit the regular insurer is called upon. Or the re-insurer, depending on whether the business deals with the underwriters or goes directly to re-insurance. > The only requirement is that all group members must have the same type of insurance Not necessarily. In fact ideally not. There are significant savings to be made by leveraging an existing float rather than having separate pots, and the social density of your group becomes sparse if you can only insure your ferret with other ferret fanciers. > The providers are financed through brokerage commissions of insurance companies In some models. Others not so much. As discussed above, dealing with the underwriters isn't the only way to run this kind of business. Also "peer-to-peer" is a misleading name in some cases. Crowdsourced might fit better.

rafamvc 11y ago
What is the name of your company?
- paulhart 11y ago
  LMLAHHNPFY (Let me look at his Hacker News profile for you)... and click one extra link. https://heyguevara.com/ https://heyguevara.com/
  - jw121 11y ago
    richmarr makes some great points on this. I am involved in a similar model launching very shortly in the US; http://www.jointly.co http://www.jointly.co Im happy to answer any related questions
a_c_s 11y ago
Is there a better introductory article you can recommend?
- richmarr 11y ago
  Unfortunately I can't think of one. Aside from a high regulatory barrier and the significant capital investment required, another reason the insurance industry has resisted serious disruption for so long is that a lot of the way things work are hidden behind closed doors, jargon, based on who you know in the industry. In the UK at least, even the pseudo-standard industry APIs they use (based on EDI, EDIFACT to be specific) are hidden behind a licencing organisation (Polaris) owned by the ABI (the industry body) that charges per transaction. It's a cartel. If it were in the future I'd describe it as dystopian. In the US they use X12, which is an XML-based version of EDI, which was published publicly by ANSI at least.
tixocloud 11y ago
If I understand it correctly from what your company's website is doing, essentially, you're leveraging the fact that good drivers tend to know good drivers and there could be a social pressure to not affect the group's members. The function of your company would be similar to that of the traditional insurer except all of the premiums go to the pool for claims and admin instead of also having to share it with shareholders/investors. What I'm curious is what happens when claims are more than what's already in the pool? My assumption would be that premiums would have to go up to cover the loss so you're banking on the fact that by group selection, claims will be less than the average. And in the event that claims are more than the average, there's probably insurance taken out on that.

peter303 11y ago

How does this differ from long-existing "mutual" insurance companies? A policy holder essentially owns a a share in the insurance company. Peer-to-peer automates this on the web.

notahacker 11y ago
I'm under the impression the p2p insurance schemes are supposed to consist of small pools of peers supposedly closely-associated enough to be willing to evaluate each others' risks, whereas the mutuals tend to pool risk across larger groups and differ from other insurers only in that they share the profits with their policyholders. I suspect in practice the larger, more diverse pool of risks and knowledge of professional underwriters at conventional insurers (mutual or otherwise) will trump the "I know X, Y and Z are very good at looking after their possessions" knowledge of the P2Ps, but it looks like the P2P schemes tend to back up the p2p scheme with a traditional insurance policy (with a relatively high excess), so actually the p2p scheme is only underwriting a portion of the overall insured risk. Theoretically you'd then get the benefit of the underwriters' ability to assess and cover expensive and idiosyncratic risks and your own better position to assess your peers' behaviour.

lhh 11y ago

Also known as "mutual insurance", which has existed for centuries. Or am I missing something?

ucaetano 11y ago
Yeah, p2p is similar to p2p lending, which is not exactly a mutual credit union. The difference is the social factor which means they'll help each other, but also that they'll trust each other. Material insurance (where you're insuring a certain $ amount) works because people have utility curves that justify it: the utility of losing 1M is much higher than 10 the utility of losing 100k. So for p2p, 10 people can buy just 5 insurance contracts and distribute the rest of the risk amongst themselves.

roymurdock 11y ago

This would be interesting to me if I could put together a small pool of say ~5 friends of the same age (22) and health (good). If everyone did this, health insurance rates would drop drastically for pools of young, healthy individuals and rise drastically for the old and the sick. Which somewhat defeats the point of insurance - spreading risk over large, heterogeneous portions of the population.

djb_hackernews 11y ago
And what happens if one of your 5 friends is diagnosed with an incurable but expensively treatable illness? Do you kick them out? Do you increase the premiums? Do you invite more people in to the pool?
- roymurdock 11y ago
  It depends on how you design the contract. You might have included a clause where you can release a member from the pool for a high one-time cost from each of the other members. At the end of the day, you would undoubtedly be liable to pay in one form or another for a portion of those treatments, unless the friend felt bad and voluntarily left the insurance group. Insurance among friends would be weird, mixing emotional and purely mathematical calculations.
  - mawburn 11y ago
    A single trip to the ER with a serious, but non-life threatening, injury could easily cost more than any 2 members of your group make in an entire year.
    - JoeAltmaier 11y ago
      So its a crap shoot - your small group is very likely to be cheaper, 99% of the time. The only important thing is, can your group actually support a real medical emergency at full cost? That's the only reason to join the group after all. When participating in a larger insurance group, these same costs are born solely by insurance premiums. But the costs are not the same - big insurance companies have negotiated lower prices across the board. Your group cannot. I see p2p insurance as a total loss, because in time of need they cannot possibly pay.

Animats 11y ago

That article needs work, and lacks historical context. The first such organization was the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, established by Benj. Franklin in 1752. They're still in business.[1] Originally, they sold permanent fire insurance. You paid premiums for some number of years, and were then paid up for the life of the building. The building can only burn down once, after all. [1] http://www.contributionship.com/ http://www.contributionship.com/

prawn 11y ago
You could add your edit and relevant link to the Wikipedia page?

mbrameld 11y ago

This is how USAA got started as well. A group of 25 US Army officers got together back in 1922 to insure their vehicles. They're one of the better insurers these days if you're eligible for their services.

z3t4 11y ago

You still need a ton of statistics and a big enough pool to make it reliable. Then you will need staff to handle applications, support and abuse ...