The broker model for peer-to-peer insurance: an analysis of its value
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The broker model for peer‑to‑peer insurance: an analysis of its value Gian Paolo Clemente1 · Pierpaolo Marano2 Received: 20 July 2019 / Accepted: 27 January 2020 © The Geneva Association 2020
Abstract The increasing role of technology is generating new challenges in fostering innovative insurance products and in offering new means of distribution for existing products. Herein, we focus on peer-to-peer insurance, where technology is used to connect policyholders and the insurance structure recalls its roots based on organised mutual solidarity. The aim is to highlight strengths and weaknesses of the broker model of peer-to-peer insurance. We address the main legal and regulatory issues by referring to European Union regulation on insurance and we develop an actuarial model to support our conclusions and evaluate the convenience of such a business model for policyholders. Although peer-to-peer insurance was created as a fairer alternative to the pool of traditional insurance companies, we see major challenges that need to be solved. The evidence sheds doubt on the convenience of the broker model for peer-to-peer insurance while the regulatory risks seem, paradoxically, certain. Keywords InsurTech · Distribution of insurance products · Peer-to-peer insurance · Premium rating · Insurance broker · Insurance regulation
Setting the scene: peer‑to‑peer insurance models and insurance regulation Innovation based on new technologies is a key driver of change in the financial and insurance sectors. The proliferation of internet access, home computing and mobile devices and the development of applications have lowered the barrier for market entry, paving the way for greater competition in the financial industry (OECD 2017). The insurance sector is no exception, where technology can lead to new methods of * Gian Paolo Clemente [email protected] 1
Department of Mathematics for Economic, Financial and Actuarial Sciences, Università Cattolica del Sacro Cuore, Via Necchi 9, Milano, Italy
2
Department of Legal Studies, Università Cattolica del Sacro Cuore, Milano, Italy
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G. P. Clemente, P. Marano
service provision as well as greater opportunities for data collection, both of which are eventually useful for better risk identification and mitigation measures. In this context, several insurance start-ups are styling themselves as “peer-topeer” (P2P) providers, based on a model that differs from that of traditional insurance. There is no common terminological understanding of or clarity on the meaning of P2P insurance.1 Regulators assessed the P2P insurance model and provided the following descriptions, which are not legally binding due to the current lack of a legal definition of P2P. In the European Union (EU), the European Insurance and Occupational Pensions Authority (EIOPA) (2019) has defined P2P insurance as a risk-sharing digital network in which a group of individuals with mutual interests or similar risk profiles pool their “premiums” together to insure against a risk and to share the
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