Insurance company Lemonade is the first of its kind. While other insurance companies have utilized Peer-to-Peer models, Lemonade is the first to do so as a carrier and not a broker.
Traditionally, there is a pattern within the insurance industry to pay as few claims as possible due to the reality that fewer claims paid equates bigger financial gain for companies. But Lemonade’s method requires policy holders to form groups that pay premiums into a claim pool; at the end of the policy period, if money remains in the pool 20% of that amount is charged by Lemonade, and the rest goes back to the policy holders in the group.
Where the model lacks in its ability to earn, it makes up for in its ability to take advantage of technologies and apps.
The groups are made of relatives and friends, and Lemonade believes that this will minimize fraud and bolster risk management. CEO and Co-founder, Daniel Schreiber has said that the traditional business model, “brings out the devil in a person.”
Not only that, but he’s noted the clear conflict of interests that exists when companies’ livelihoods essentially depend on their denial of claims. Lemonade in its transparency, as well as in the philanthropic manner in which it funnels remaining finances back to the policy holders, is pretty revolutionary.
As with all business models, there are risks to P2P insurance. Some, or all within the group can conspire to commit fraud. Hence the Gresham Law: the dishonest will drive away the honest. Conversely, a P2P insurance platform can more easily swindle from clients. The legal loopholes on both sides are many.
Currently, Lemonade is only available for homeowner and renter’s insurance in New York City. However, Sequoia Capitol co-led $13 million in financing for Lemonade the last year, the largest round of seed fundraising, and that’s likely a positive sign for the future of similar companies.
The P2P insurance business models and technology are both on the rise globally. It’s fair to forecast a trend on the horizon that will change the face of insurance companies as we know them, granting more agency for both the insured and the companies alike.
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