International life insurers explore peer-to-peer concept

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Peer-to-peer insurance offers both cheaper premiums and a sense of community to customers, but the model has yet to make any inroads in the U.S. due to a lack of familiarity, experts say.

LIMRA’s “2017 Insurance Barometer study”—co-authored with LifeHappens—gauges consumers interest in purchasing life insurance through peer-to-peer carriers. The consulting firm defines the model as a part of sharing economy where individuals buy into groups based on needed coverage or matching risk profiles. Unused claims dollars from premiums are returned to policyholders or donated to charity. By all accounts, group members insure each other.

Italian insurer Axieme, German company Friendsurance, and TongJuBao, based in China, highlight a shortlist of industry peer-to-peer examples worldwide, according to Lauren Finnie, senior research analyst at LIMRA.

“What peer-to-peer companies try to sell is transparency through real-time interactions and social communities,” said Finnie, one of the study’s authors.

The concept is similar to Lemonade’s business model in the renters’ insurance market. But the New York startup has distanced itself from it due to difficulty in explaining the approach.

That’s a common problem stateside, according to the April report. Of the 2,031 individuals surveyed, 84% confessed they had never heard of peer-to-peer insurance models.

“Most people, when thinking of buying life insurance, buy it from large companies they know and only require an online option in case they don’t want to talk [on the phone],” said Marvin Feldman, CEO of LifeHappens, a non-profit organization which educates consumers on best practices in policy purchasing.

There are a number of risks for consumers who opt for peer-to-peer coverage, Feldman says. The biggest is buying into small risk pools where one member’s claims history can heavily dictate premiums. The other is participating in a market no company has created a stable model to use as a base.

“When you spread the [risk] pool out over more people you average out all of those costs and it becomes a lower risk to participate,” he said.

Despite the markets immaturity, one-third of consumers (30%) would still consider purchasing life insurance through a P2P carrier, the study finds. Part of the appeal is the ability to purchase policies online at cheaper prices than customers would receive from larger incumbents.

“I think that’s high,” said Maggie Leyes, VP of content strategy at LifeHappens. “Consumers should make sure the company is around long enough to pay a claim. There’s also no assurance a group will stay together long enough.”

LIMRA’s Senior Research Director Jim Scanlon partnered with Leyes and Finnie in writing the study.

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