P2P Insurance (Peer-to-peer insurance) is a service that allows a group of individuals to combine their funds to support one another against various risks. Usually, these individuals are family members, friends, or those who have a common interest. Policyholders enjoy greater control over management choices compared to traditional insurance firms, and they might receive refunds on excess premiums or choose to donate them to a preferred charity.
A notable example of P2P insurance is the health care sharing ministry (HCSM) model, where individuals with similar faith or ethical values contribute to cover each other’s medical expenses. While it’s not typically classified as insurance, it shares many characteristics with a self-managed P2P insurance system.
How Does P2P Insurance Works?
Peer-to-peer insurance is often described as using advanced tech platforms and automation. There are indeed insurtech startups that match this description. However, according to Ashley Connell, the founder of Lease Extensions and a legal expert in the U.K., peer-to-peer insurance is actually a classic method of people supporting one another.
“In P2P insurance, individuals join groups with others who are similar to them,” Connell explained. “Then, everyone contributes a small amount into a communal fund. If someone needs to make a claim, it gets paid from that fund. If there’s any surplus at the end, sometimes people get a refund, or it carries over to the next period. The company that manages the groups typically charges a fee to cover operational costs.”
Connell pointed out that the key distinction between P2P and traditional insurance lies in their structure and management. Traditional insurance is usually provided by a large corporation that gathers funds and disburses claims. Its primary objective as a business is to generate profit.
In a P2P model, if there are fewer claims than expected, the remaining unused premiums are returned to the group. Some companies have expanded while still keeping many of the characteristics of P2P insurance.
Traditional insurance often depends on reinsurance to meet members’ needs when funds are insufficient. In contrast, peer-to-peer insurance programs, particularly those that are self-managed, might not rely on this. Nevertheless, they could have alternative measures in place to ensure that needs are fulfilled.
Nowadays, peer-to-peer insurance companies may collaborate with an insurance provider, function as one themselves, or be governed by the group members.
The Example
A health care sharing ministry program is the closest thing to P2P insurance in the U.S. While these programs, like Samaritan Ministries and Medi-Share, aren’t technically or legally classified as health insurance, they are generally nonprofit and rooted in Christian faith. In 2022, health care sharing ministries shared a whopping $1.3 billion in medical expenses, as reported by the Alliance of Health Care Sharing Ministries.
These ministries usually cover medical costs in two main ways. One approach involves pairing a paying member with another member who needs reimbursement for health care. The other method is pooling monthly contributions and then distributing payments to members for eligible medical expenses.
Besides providing financial help and receiving reimbursements, members can vote on board member elections, share increases, or discuss advisory matters like changes to member guidelines. They are also encouraged to offer support through individual or community prayers or by sending a note to the person receiving funds.
For example, looking at Samaritan Ministries, Christian members typically send their monthly share (which is like a premium) directly to another member in need of medical assistance, either by mailing a check or using PayPal.
Additionally, the organization requires members to pay a $400 initial unshareable amount (similar to a deductible) for each medical need (akin to a claim). This fee can be waived if they choose a reasonably priced provider listed in the Healthcare Bluebook.
Conclusion
Peer-to-peer insurance has caught some eyes thanks to companies like Lemonade. However, it’s not yet a widely embraced insurance model, and there might not be many companies (if any) that provide the specific insurance you’re looking for. If you’re thinking about going with peer-to-peer insurance, the best option is to pick one that’s licensed or supported by a licensed and regulated insurance company. This way, you’ll have the same protections as you would with traditional insurance providers. Just like with any insurer you choose, make sure the P2P group you’re looking at is a financially solid insurance company that can handle claims when necessary.