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Is P2P insurance a sustainable business model?

Is P2P insurance a sustainable business model?

P2P insurance is a wakeup call insurers needed and now InsurTechs and incumbents are locked in a race to win the hearts and pockets of the customer.

Murray Raisbeck

Global Co-leader, KPMG Fintech practice

KPMG in the UK


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An often asked question is whether P2P will disrupt existing personal lines insurance markets? I do not believe that it will be disruptive in its own right, because I am not convinced that pure P2P models are scalable enough to become mass market insurers. This is because of challenges around:

  • getting sufficiently large number of customers with similar risk profiles into a pool and to remain connected to each other
  • customer inertia
  • being able to explain P2P insurance to customers in a simple manner
  • getting customers to trust a P2P's claims paying capability, 
  • the vast marketing spend that would be required to get the brand recognition needed to scale.

However, I do think that P2P insurance will be a sustainable business model that will become part of the insurance market, albeit it, in niche segments. I also think that P2P will be one of a number of forces that continues to shape the future of the insurance market.

Whilst I don't believe that that the pure P2P carrier model is scalable, I do believe that the wave of InsurTech business that are harnessing the power of Communities (as Hugh has referred to) to provide a more customised insurance service (from advice all the way through to claims fulfilment) are transforming the market. By really understanding the needs of customers the new wave of community based InsurTechs are not only providing existing customers with great alternatives to the transitional insurers, but they are also opening up new markets. The Lemonade example that Rick has cited is an excellent illustration of this; 80% of their new customers are totally new to rental insurance! Community based insurers underpinned by great technology are eminently scalable.

P2P is part of the wider trend, which is the insurance market and value chain is becoming increasingly unbundled and repackaged by businesses (many of them InsurTech) that are specialising in a specific part of the market or value chain. There are not many examples of new entrants trying to become the all new composite insurer of the future. A new entrant that does try and become that, will probably find themselves being the legacy of tomorrow.

P2P is one of several forces for good driving change in the sector and traditional providers of insurance capital and underwriters will face competition from it. This is similar to the burgeoning catastrophe bond market, whereby the capital markets now have more direct access to assuming insurance risk. Traditional reinsurance markets like London and Bermuda are now in a race to control that market. Investors and customers are going to have more ways to participate in insurance than they do today, and P2P will be a key part of that. P2P will set the bar for what customers expect in terms of trust, transparency and customer experience. The rise of other InsurTech firms alongside P2P is now starting to get the traction that P2P was not able to achieve alone.

A recent KPMG Nunwood survey showed that leading insurance companies lag well behind other financial services companies (let alone other sectors) across 6 pillars of Customer Experience Excellence. That did not surprise anyone, however, until recently there have been few alternatives to challenge the status quo. P2P has held a mirror up to the insurance sector and made it realise that aspects of the sector need to go back to their roots, albeit modernised and more customer focused. P2P was the wakeup call insurers needed and now there is a much wider pool of InsurTechs and incumbents that are locked in a race to win the hearts and pockets of the customer. Has this left the P2P's wondering what next?

Article original published in The Digital Insurer: Is P2P Insurance a Sustainable Business Model?

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