Lorraine Roberte is an insurance writer for Investopedia. As a personal finance writer, her expertise includes money management and insurance-related topics. She has written hundreds of reviews of insurance products.
Updated April 11, 2024Peer-to-peer insurance is a product that lets a group of people pool their money together to cover each other for various risks. Typically, these people are family, friends, or people who share a similar interest. Policyholders get more control over management decisions than they do with traditional insurance companies, and they may get back excess premiums or have them donated to a chosen charity.
One strong example of P2P insurance is the health care sharing ministry (HCSM) model, where people with similar faith or ethical beliefs pitch in to pay each other's medical costs. It’s not usually defined as insurance but has many features of a self-governed P2P insurance model.
Peer-to-peer insurance is sometimes referred to as involving high-tech platforms and automation. And there are examples of insurtech startups that fit that description. But peer-to-peer insurance is actually an old-school way of people helping each other out, according to Ashley Connell, founder of Lease Extensions and a legal professional in the U.K.
“In P2P insurance, folks sign up in groups with others like them,” Connell said. ”Then, everyone pays a little money into a shared pot. If someone has a claim, it gets covered from that pot. If there's extra money left at the end, sometimes people get it back, or it rolls over to the next period. The company facilitating the groups usually takes a fee to pay for running things.”
Connell said the main difference between P2P and traditional insurance is how the two are set up and run. Traditional insurance is typically offered by a big company that collects money and pays out claims. As a business, its biggest goal is to make a profit.
With a P2P, if there are fewer claims than anticipated, the leftover unused premiums are returned to the group. Some companies have scaled up while maintaining some or most of the qualities of P2P insurance.
Traditional insurance also generally relies on reinsurance to cover members’ needs when there aren’t enough funds. Peer-to-peer insurance programs, especially those that are self-governed, may not. However, they may have other safeguards to help ensure needs are met.
Peer-to-peer insurance companies today might partner with an insurance carrier, operate as one themselves, or be self-governed by group members.
A health care sharing ministry program is the model most similar to P2P insurance in the U.S. Although not technically or legally defined as health insurance, these programs (including Samaritan Ministries and Medi-Share) are typically nonprofit and Christian faith-based. In 2022, $1.3 billion of medical expenses were shared by health care sharing ministries, according to the Alliance of Health Care Sharing Ministries.
Health care sharing ministries typically help pay medical expenses in one of two ways. One method is matching a paying member with another member needing health care reimbursement. Another is pooling monthly financial contributions, then sending payments to members for covered medical costs.
In addition to offering financial contributions and receiving reimbursements, members may vote on which board members to elect, share increases, or advisory issues such as changes to the member guidelines. Members are also asked to offer other types of support through individual or community prayer or a note to the fund recipient.
Health care sharing ministries in some states are exempt from state laws regulating health insurance. In others, they are not exempt.
For instance, a look at Samaritan Ministries shows that Christian members usually submit their monthly share (similar to a premium) directly to another member with medical needs, either by mailing a check to the person or sending a PayPal payment.
The organization also requires members to pay a $400 initial unshareable amount (similar to a deductible) for each need (similar to a claim). This amount can be waived by going with a fair-priced provider from the Healthcare Bluebook.
Lemonade
Lemonade has called itself the world’s first P2P insurance company. The home, auto, pet, and life insurer Lemonade currently describes itself as a “full-stack carrier,” which means it retains autonomy over almost every aspect of its business. But in some ways, it operates similarly to a P2P.
Like many P2P companies, Lemonade takes a set fee for premiums, relies heavily on automation, and returns net profits. In peer-to-peer insurance, members typically receive back leftover unused premiums, but Lemonade gives it to the policyholder’s nonprofit of choice. Lemonade has donated more than $8.1 million in total.
Peer-to-peer insurance may sound appealing, but there aren’t many options available in the U.S. besides Lemonade and health care sharing ministries. This may be because insurance is heavily regulated at the state level, not allowing for much flexibility when creating a peer-to-peer company.
Other P2P companies may offer an insurance alternative. Still, these companies don’t come with the protections that insurance policies offer, and they may not be able to replace state- or federally-mandated insurance unless specified. For example, unlike health insurance, health care sharing ministries may have limited benefits, which could present a financial risk.
Companies with a peer-to-peer insurance model can be a low-cost alternative to traditional insurance. But you’ll need to closely examine the insurer and the policy to ensure your claims are paid.
P2P insurance companies that administer policies without an underlying reinsurance carrier may not offer the same protections as traditional insurance companies or meet insurance regulatory requirements. They also may not be supervised by state insurance regulators.
Important questions to ask when researching these kinds of companies include:
The risks of P2P insurance depend on the type of P2P business model. The most significant risk for consumers is that there may be insufficient funds to pay a claim when needed. Companies that are licensed and regulated insurance carriers or that partner with one likely have much of the same risk for consumers as traditional insurers. In general, these are safer options because of heavy regulations in place to protect policyholder interests.
Lemonade’s main feature that makes it more like a P2P insurance model than a traditional one is that it takes a flat fee from premiums as profit and gives the unused portion (after deducting claim payouts and expenses) to charities. It’s still a fully licensed and regulated insurance company.
Peer-to-peer insurance has gained attention through companies such as Lemonade. But it’s still not a popular insurance model, and there may not be many companies (if any) offering the type of insurance you need. If you’re considering peer-to-peer insurance, the safest route is one licensed or backed by a licensed and regulated insurance company. This gives you the same policyholder protections as you have with traditional insurance carriers. As with any insurer you choose, you also want to ensure the P2P group you’re considering is a financially strong insurance company and can pay claims when needed.