P2P insurance, social insurance—what the heck are we talking about? If you’re familiar with other peer-to-peer programs and platforms that exist for lending, it’s fairly easy to understand.

What is peer-to-peer or P2P insurance?

Peer-to-peer (or P2P) insurance brings together a group of individuals who then pool their premiums in an effort to insure against risk.

In practice, P2P insurance is a risk-sharing network that combines crowdsourcing platforms and a social media presence to lower insurance costs.

P2P insurance typically offers lower policy prices because there is no premium provider collecting a profit, and P2P pools can cover almost anything, including renters insurance, auto insurance, and more.

Insurance pools can be made up of any number of people who have a common interest. These pools tend to be less risky than traditional insurance pools, as members voluntarily joining have an incentive to seek out a low-risk pool because it will be more cost-effective for them. Traditional insurance pools include people with a wider range of risk profiles.

Should you consider signing up for a P2P insurance program?

Most people interested in a P2P insurance pool are looking for cheaper, less risky options. However, P2P insurance is still rather new and hasn’t been widely adopted, and you may have trouble finding pools to join.

P2P insurance vs. traditional insurance

Traditionally, insurance companies “pool” customers’ policies together to spread out risk—the premiums paid by healthier customers cover the costs of those in the pool who require more care, and for the insurance company to earn a profit by holding funds not paid out in claims. When more customers enter the pool, the larger and more stable it becomes as more people are paying premiums.

Conversely, P2P insurance pools do not have a direct insurance provider to hold leftover funds, and the remainder is distributed back to the pool’s members.

The trouble with the P2P insurance model

While P2P insurance offers many benefits to consumers, the concept still faces challenges. Many P2P insurance pools are small, few and far between, and can be choosy when it comes to admitting new members.

There may also be limitations on coverage, mainly because P2P pools are still relatively new to the market. In addition to being smaller than traditional insurance pools, they may be riskier and less stable.

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