Last week, I read this LinkedIn post:

Peer-to-Peer Insurance: A Passing Fad or an Industry Disruption?
(Note: The LinkedIn post has apparently been removed by the author.)

If you examined the linked article, you’ll see that it comes from a college student whose industry experience apparently consists of 3 years majoring in actuarial science. These are my responses to excerpts from that post:

“I am not surprised to see tens of thousands of insurance companies going out of business in the past century.”

Where did you get the idea that “tens of thousands” of insurers have gone out of business? If every P&C insurer in America went bankrupt, it wouldn’t amount to “tens of thousands.” Now, in the future, it’s conceivable that we might see tens of thousands of so-called “disrupters” go out of business and, if so, the carriers that have been around for decades or centuries who know what they’re doing will have to clean up after them via guaranty funds while the founders move on with the money they’ve made to some new venture enabled by another foolish venture capitalist.

“…traditional insurance (which is built on the assumption of human evilness)….”

Sounds like you’ve been drinking the hype and hyperbole Lemonade that’s being ladled out on the internet. The very essence of insurance is that it is a good faith transaction. That’s one aspect that distinguishes the insurance contract from other types of contracts. The insurer relies on the insured’s promise to pay the premium and abide by the policy terms and the insured relies on the insurer’s promise to pay covered losses and abide by the policy terms. Whoever taught you that presumptive premise is lacking in historical perspective and understanding of industry fundamentals. If there is a premise for insurance with a condition, it’s the adage “trust and verify.”

“I believe that a peer-to-peer insurance system is the future of insurance in the USA. Peer groups with same insurance needs, such as homeowners or car owners, gather together to share each other’s risks. Everyone pays premiums to cover other people’s losses. It is cheap because there is no middleman fee. Lemonade Insurance, a B-Corp headquartered in New York, takes a step even further. The leftover money each year goes to charities, which attracts lots of millennial customers. It will also hinder moral hazard, meaning customers will not be dishonest to get coverage.”

As an actuarial student, you should know that this is precisely how insurance works today and has worked for centuries, grouping actuarially homogenous exposure units. What is a “middleman fee”? Are you referring to the 7-10% commission paid to insurance agents for auto insurance and the 10-12% (if that) commission paid for homeowners insurance? Your presumption appears to be that this fee is completely wasted, that the insurance agent provides nothing of value. How does the typical consumer/family/business know what their exposures to loss are and how they can be insured or otherwise risk managed? What happens when a direct insurer denies a claim that should be covered? A good independent insurance agent advocates at claim time for THEIR customer. I know that because I’ve been helping them successfully do it for over 28 years.

By the way, Lemonade’s co-founder Shai Wininger recently said, “If I had to choose one thing that didn’t work as we had hoped, it’s our use of P2P to describe what Lemonade is,” he wrote. “In retrospect, it created a lot of confusion. People seem to read so many different things into this term, so we now described ourselves using phrases like AI and Behavioral Economics.”

“Lemonade Insurance, a B-Corp headquartered in New York, takes a step even further. The leftover money each year goes to charities, which attracts lots of millennial customers. It will also hinder moral hazard, meaning customers will not be dishonest to get coverage.”

What makes you think millennial customer are any more honest than someone who, say, is in his or her 60s or 70s? Incidentally, the charitable aspect is nothing new. [] And why do you think this angle will hinder moral hazard? In a press release from Lemonade, they tout how they allegedly paid a claim, no questions asked, in 3 seconds. That’s exactly the thing that will attract fraudsters and any belief otherwise is incredibly naive unless their algorithms approach the level of divinity.

“Peer-to-peer insurance is phenomenal, because it is an innovation from the ground up. It disrupts the basic assumption of traditional insurance, which is human evil. Peer-to-peer insurance is like community based support groups. Everyone helps each other out especially for millennials, who are more cooperative than their parents and grandparents.”

There’s nothing innovative about peer-to-peer insurance. Reciprocals, mutuals, captives, and other forms are arguable “peer-to-peer arrangements. Alexandre Dumas (pere) said, “All generalizations are dangerous, even this one.” You seem to generalize a lot about millennials. You know that millennials are “more cooperative” than their parents and grandparents? Other would argue that the more precise term is “gullible” but not me. Generalizations, like stereotyping and bigotry, are dangerous.

“You will not spend several hours filling out personal information sheets, which is what you do for traditional insurance. Again, traditional insurance companies need so much information from you, because they want to make sure that you are not dishonest and not committing ‘stupid’ behavior.”

Insurance applicants are asked a lot of questions because a lot of questions must be asked in order to determine what unique exposures to loss every individual, family and business has. Not every purchase can be reduced to an Amazon-like “1-Click purchase” nor should it. If your health or life is at risk, do you choose the doctor who is the cheapest and/or asks the fewest questions or orders the least number of diagnostic tests? American families and businesses can and do suffer catastrophic financial loss. INSURANCE is one mechanism that can protect them from such loss or minimize the consequences. There is a right and proper way to do that. A smart phone app isn’t.

“The real revolution in the insurance industry is coming. In the next decade, I expect to see peer-to-peer insurance obtaining larger and larger market size, while traditional insurance market shrinks. The coming years are going to be full of exciting opportunities and I cannot wait to see disruptions happen in the insurance industry.”

In the meantime, while waiting for the revolution, comrade, I suggest you spend that time educating yourself about what insurance is really all about from people who actually know. Your enthusiasm is admirable and I hope you take this critique as a form of “tough love.” Over 47 years in the industry tell me, with apologies to Inigo Montoya, that you do not know what you think you know.

Readers, what do you think? Scroll down to add your thoughts.

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Bill Wilson

Founder at
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information