If you have been trying to find the most affordable motorcycle insurance products on the market, you might have come across the new peer-to-peer (P2P) kind. P2P insurance companies pool the premiums that numerous individuals with similar coverage need, allowing everyone to help pay the claim of one another.
The innovation aims to lower the premiums of members within the network. A portion of the pooled money goes to reinsurance, so no one in the online community has to chip in more in the event of a larger claim.
What sets the P2P insurance model apart to the traditional ones is the lack of incentive to the company to fight claimants. If there is leftover money in the pool, the net funds are generally distributed to the digital wallets of all members or to a charity of choice.
When data is stored on the blockchain, all transactions become inherently transparent and traceable. As a result, everyone knows where the money goes. It eliminates the need to have faith in the insurance company, for the rather decentralized system itself promotes trust.
Indeed, P2P insurance is promising. However, is it really what it seems to be? To understand whether or not you should take the P2P route for your motorcycle insurance needs, let us dispel some of the most common misconceptions about it first.
It Is a Fresh Concept
The term “P2P” sounds exciting because it is tantamount to fintech (financial technology). Fintech has been the source of several innovative solutions to address the problems that incumbent players in the world of finance refuse to solve.
But to say that P2P insurance is novel is not exactly accurate. The model is actually akin to that of mutual insurance, which has been in existence since the 17th century.
Upon closer inspection, a P2P insurance company merely brokers the collection of premiums, delivery of benefits, and distribution of excess funds. Like policyholders of a mutual insurance company, the members of the digital community have a lot of control over the process.
It Follows a Universal Model
Throughout its brief history, P2P insurance has undergone an evolution to test different models. Companies in this space grew throughout three waves of model changes: the distribution model, the carrier model, and the self-governing model.
P2P insurance communities may appear the same at first, but they may operate distinctly from one another. After all, these startups themselves have yet to figure out the most viable model at this point.
Berlin-based Friendsurance, recognized as the first major P2P insurance player in the world, is less than 10 years old. The company still lacks an extensive track record to make traditional insurers look like rookies.
It Will Be the New Standard Soon
There is a reason the traditional insurance model, despite its flaws and criticisms against it, has not changed for centuries. It works for most people. It is yet to be seen whether consumers across the world will truly find merit in P2P’s benefits, considering that not everyone is comfortable to share their claims history to others, especially their friends and relatives.
It is natural to gravitate toward P2P insurance, but take it with a grain of salt. While it presents badly needed change in the industry, it will not necessarily work for everyone. Understand the business of your company and think about the implications of switching from traditional to P2P to avoid learning your lesson the hard way.