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Updated Oct 20, 2023

Is Peer-to-Peer Insurance Right for Your Business?

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Adam Uzialko, Business Strategy Insider and Senior Editor

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When it’s time to select health insurance plans, few things are ever simple. But peer-to-peer (P2P) insurance may streamline the process for your business.

In traditional insurance plans, monthly premiums are paid to an insurance carrier. The carrier then pays out claims filed by covered individuals using those premium funds. The increasing overall cost of healthcare means a heavy financial burden for enrolled employees, and often an even bigger burden for employers who help pay premium costs. [Related: How to Save Money on Business Insurance]

While a traditional insurance plan is what most employers offer, it’s not the only option. One potentially more affordable alternative for small businesses is P2P insurance. Here’s what you need to know about it and how to decide if peer-to-peer insurance is right for your business.

What is peer-to-peer insurance?

P2P insurance is a risk-sharing network where a group of associated or like-minded individuals pool their premiums together to insure against a risk. Unlike a traditional insurance model, in which a large group of individuals with varying risk levels are covered under the same plan, P2P insurance lets you select your insurance pool. This includes friends, family members, or people with whom you share interests and activities.

Instead of keeping unused premium funds as profits like traditional insurers do, P2P insurers return any remaining funds at the end of a coverage period to the pool’s members. If the claim payouts exceed what’s available in the pool during a given coverage period, a reinsurer, which assumes part of the risk in exchange for a share of the insurance premiums, covers the difference.

What businesses can benefit from P2P insurance?

Very small businesses can benefit significantly from a P2P insurance model. These microbusinesses are often less complicated to underwrite, since they involve fewer individuals to insure.

Kyle Hoffman, program lead at Chubb, said businesses who have few employees but still want to offer insurance are prime candidates for P2P insurance.

“Microbusinesses — companies with less than 10 employees — are the perfect target for P2P insurers, because it’s a large and growing segment of the market that has traditionally been underserved by brokers and carriers,” Hoffman said. “As P2P insurers become more established and sophisticated, they’ll likely move up channel to serve larger businesses who yield better unit economics.”

P2P insurance is becoming an online, direct-to-consumer way to purchase insurance, Hoffman said. This improves interactions between insurers and the insured “by leveraging new technology like automation, AI and modern CX [customer experience] concepts, and enhancing the benefits returned to insurers in years where there are a few claims,” he said.

According to Hoffman, the major benefit of P2P insurance is the value it places on growth. “In contrast to a stock carrier, which effectively serves its shareholders, P2P insurers as mutual insurance companies seek to deliver value to their policyholders.”

P2P insurers are looking to build their competitive advantage with a low cost, which is frequently the first and foremost consideration for small businesses, according to Hoffman. However, prudent insurance purchasers will thoroughly assess the coverage being offered and the carrier’s ability to pay claims and balance that with the cost of the insurance, he said.

Peer-to-peer insurance vs. traditional insurance

Transparent process

P2P insurance is provided by members who all face similar risks. They have a clearer process in terms of payments and joining requirements. Members are conversant with who is joining the group, who is making a claim and how much is left in the pool.

Traditional insurance firms face a huge number of rules and regulations at the national, local and state levels. They have massive operational costs to back up these policies. Peer-to-peer insurance, on the other hand, is simple and has minimal regulations. The cost of operation is also minimal, since the groups usually comprise only a few individuals.

Easier to make claims

Making claims is easier with peer-to-peer insurance, as it involves fewer procedures. Payout is usually made within minutes since it’s typically digitized. Traditional insurance payments could take months or, in some cases, years. The traditional payment process is often not digitized and involves lots of paperwork. A client must prove loss and undergo a rigorous process before the insurance provider determines the value of the loss.

The members of a peer-to-peer insurance pool may know each other well. They will be well aware of incidences that require claims, so a member will not have to prove much.

Lower premiums

Peer-to-peer insurance charges lower premiums than traditional insurance, because it has fewer running costs. Where members are few, insurers may not need employees or even an office. These costs significantly reduce the premiums members need to pay. These funds are often invested in reinsurance.

Pros of peer-to-peer insurance

  • Money back: Where funds are not reinvested, they are shared among the members based on their contributions. Unlike traditional insurance, which might never return your funds, peer-to-peer insurance acts as a saving opportunity in which the funds saved could be used for personal projects.
  • Ease of receiving claims: It is easier to receive claims from peer-to-peer insurance. This form of insurance requires less paperwork, and the processes are often digitized. P2P insurance is not for profit, so the members should have no problem making claim payments.

Cons of peer-to-peer insurance

  • It’s not available everywhere. P2P insurance is a new experiment that has not been accepted everywhere yet.
  • It lacks personal contact. Peer-to-peer registration for insurance products and payments is done digitally. This is convenient for many people, but others prefer to handle these transactions in person.
  • You are not always assured of payment. When several claims are made at a time, all the pool’s funds may be used up. Some members may not receive their claims.
  • It is not always cheap. In some cases, the premiums for P2P insurance are higher than what you’d pay for traditional insurance.

Is peer-to-peer insurance right for your business?

If you run a small business with 10 or fewer employees, P2P insurance may be a convenient and affordable way to extend healthcare coverage to them. However, while P2P insurance streamlines the claims process and makes it easy to give your employees healthcare benefits, it does come with some drawbacks, like limited availability. Its affordability is not always guaranteed either, depending on the nature of your business and your location. To determine whether P2P insurance is right for your business, consider the tips in this guide and research your local market to find out what your costs will be.

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Adam Uzialko, Business Strategy Insider and Senior Editor
Adam Uzialko, senior editor of Business News Daily, is not just a professional writer and editor — he’s also an entrepreneur who knows firsthand what it’s like building a business from scratch. His experience as co-founder and managing editor of a digital marketing company imbues his work at Business News Daily with a perspective grounded in the realities of running a small business. Since 2015, Adam has reviewed hundreds of small business products and services, including contact center solutions, email marketing software and text message marketing software. Adam uses the products, interviews users and talks directly to the companies that make the products and services he covers. He specializes in digital marketing topics, with a focus on content marketing, editorial strategy and managing a team.
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