The INSURTECH Book

Assessing the Long-Term Viability of the Insurance Peer-to-Peer Business Model

By Damiano Pietroni

Management Consulting Manager – Insurance, Accenture

Background

The peer-to-peer (P2P) insurance sector is enjoying significant growth because of the linearity of its business model:

• Customer premiums are pooled by the P2P insurer into risk-specific pools; for example, motor risk or mobile phone risk pools.
• Customer claims are paid from the pool; where the pool is insufficient to cover a claim, the P2P insurer acts as reinsurer.
• Funds remaining at the end of the year after all claims have been paid are either returned to customers or carried over into the next year.
• The P2P insurer makes a profit by extracting a percentage of the funds in the risk pools to cover costs and margin.

This type of business model is the focus of this chapter. We will first cover how the business model of three major P2P insurers (Lemonade in the US, Friendsurance in Germany, and Guevara in the UK) compares to the business model of three large general insurers (Allianz, AXA, and AIG), before listing and analysing key advantages and limitations between the two groups. We will then determine the long-term viability of the P2P insurance model.

Comparing Business Models – Common Elements

Lemonade, Friendsurance, and Guevara leverage the same risk pooling mechanisms as Allianz, AXA, and AIG.

Comparing Business Models – Differing Elements

• With 2016 revenues of €122 billion (Allianz),¹ €100 billion (AXA), ...