
Peer-to-Peer Insurance - tmlee
https://en.wikipedia.org/wiki/Peer-to-peer_insurance
======
richmarr
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.

~~~
tixocloud
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.

~~~
richmarr
Yeah, good comment. I had a few of these thoughts myself in the early days but
I think you're missing the main value of it. Apologies for the over-wordy
reply.

> leveraging the fact that good drivers tend to know good drivers

I think humans might overestimate our ability to pick 'good' drivers. I
wouldn't trust it very far... but it also doesn't matter much.

What matters is badly underpriced drivers, for example your mate who drinks
and drives but doesn't yet have a conviction for it. Don't invite him.
Everyone else is broadly fine.

> ...there could be a social pressure to not affect the group's members

That's a factor we're expecting to be able to measure, but it's not part of
the business model per se.

> 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.

Yeah, broadly speaking. Guevara's revenue stream is a flat fee, compared to a
conventional insurer whose income is your premiums... so Guevara isn't
motivated to inflate your premium or to look for technicalities when handling
claims.

> when claims are more than what's already in the pool?

The UK motor insurance market requires policies to have uncapped liability, so
you always need reinsurance. Even when you're insured through Admiral et al
the larger claims are farmed out to Munich Re, Swiss Re, Trans Re, etc.

> ... premiums would have to go up to cover the loss...

To an extent, yeah. You do get price volatility, but we cap it at 100% of your
(competitive) Year 1 premium. Your premium can drop as low as 25-30% of your
typical market rate in a good year, and averages out costing about 50%. You
get that huge discount in exchange for taking that volatility.

That discount is effectively the underwriting profit that would normally go to
the insurance company.

> ...so you're banking on the fact that by group selection, claims will be
> less than the average.

We're not banking on group selection being meaningful to our claims rate. We
_hope_ for lower claims rates, and lower average claim size, but we'll be very
successful without those things because it's simply a better business model.
There's much less moral hazard, lower susceptibility to fraud, less
information asymmetry... but more importantly (a) as you build up capital your
premium drops, so you get a lower price and we get a higher LTV through
reduced churn, and (b) we have a lower CAC compared to conventional insurers.
I know I'm biased but I think it's a strong model even before any of the
behavioural benefits.

I should add that I have now stepped back from Guevara (I can't commit enough
time for family reasons), so my knowledge of product pricing, policy, and the
rest of this stuff is dating rapidly.

~~~
tixocloud
Thanks for your really insightful comments. I've been studying and working in
the industry for several years now trying to see if there's a better way to do
it. In fact, I did study Guevara along with other insurance-based startups to
see if there's anything to learn from or be aware of.

It doesn't seem to me that customers would see full value of their "purchase"
if they have never had a claim. Yet, it's crazy that their premiums go up
because someone else had a major accident. On the flip side, insurers can't
really choose to raise their rates like a normal business would do. For me,
this is the fascinating part about insurance businesses.

What is curious to me is if there is a way to build a risk model that assumes
that people will get into accidents by default? You've mentioned that people
overestimate our ability to pick good drivers. Why not build a model that
assumes people are bad drivers by default and optimize from there?

~~~
richmarr
> It doesn't seem to me that customers would see full value of their
> "purchase" if they have never had a claim.

If you think about Guevara's insurance as capital expenditure (by describing
it as a purchase) then, sure, you're right, losing some of it because of
someone else's accident triggers our human aversion to loss.

But, the trick there is that while Guevara's insurance can be described as
capital expenditure, conventional insurance is always operational expenditure.
With conventional insurance you're not _buying_ your insurance, you're only
_renting_ it. At the end of the year you have nothing.

> Why not build a model that assumes people are bad drivers by default and
> optimize from there?

I think Guevara's model is as close to that as it's possible to go. By moving
an acceptable degree of the financial repurcussions for accidents onto you and
your social group, Guevara is stepping back from needing to care directly
about who is and who isn't a good driver.

For example, if there were a way let a group choose their own prices, or pay
flat prices, then (in theory at least) Guevara would be able to entertain that
idea. Pricing matters for Guevara in terms of customer acquisition, and in
terms of making things feel fair for your group-mates, but other than that
it's not a big issue.

Insurers care about pricing so much they're putting tracking devices in
peoples cars to understand their driving patterns. They need to get more and
more and more data because they're ultimately trying to predict the future.
Guevara doesn't need to do that.

------
roymurdock
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.

~~~
Mz
Fwiw: I paid accident claims for over five years. Most claims fell into one of
two categories: "accident waiting to happen" or people trying to get coverage
for things like the chiropractic care they were going to get three times a
week anyway. Only a tiny portion of claims really struck me as shit
happens/man, it sucks to be you.

If you really want low health bills:

Do all that boring stuff you constantly read about, like brush, floss, eat
right, exercise, and only drink in moderation. Do not ever get rip roaring
drunk. Especially do not drive or engage in other dangerous activities while
drunk or high. Don't sleep around casually. Don't ride a motor cycle. If you
want to go hiking in the mountains, take the appropriate precautions and do
not drink or do drugs.

A lot of claims will not be covered anyway if you were drinking, taking drugs
or engaging in risky behavior (parachuting, mountain climbing). And keep in
mind that insurance only protects against financial loss, and only to a
limited degree. If you permanently maim yourself doing stupid crap, you will
not only be stuck with high medical bills and reduced odds of making a good
income thereafter, you are also _permanently maimed,_ duh. Living with chronic
pain and other issues of that ilk still sucks majorly, even if you win the
lottery and are set for life financially.

/boring old fogey

~~~
morsch
If I could offer you only one tip for the future, sunscreen would be it. The
long-term benefits of sunscreen have been proved by scientists.

~~~
roymurdock
Whereas the rest of my advice has no basis more reliable than my own,
meandering experience. I will dispense this advice on HN.

------
Animats
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
You could add your edit and relevant link to the Wikipedia page?

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

~~~
ucaetano
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.

------
mbrameld
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.

------
peter303
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
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.

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jxm262
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.

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dtparr
How does this differ from a reciprocal inter-insurance exchange[0] like USAA?

[0] - [https://en.wikipedia.org/wiki/Reciprocal_inter-
insurance_exc...](https://en.wikipedia.org/wiki/Reciprocal_inter-
insurance_exchange)

------
z3t4
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 ...

