The Business Case for Organizational Diversity
The Business Case for Diversity The articles in this module so far have focused on how organizational diversity makes eminent sense from legal compliance and value based perspectives. The discussion so far was about how organizations must embrace diversity as a value based imperative and for furthering corporate social responsibility. This article examines the business […]
How to prepare for Win Win Negotiation ?
A discussion among individuals to reach to an alternative which involves the interest of all the participants is termed as negotiation. An individual must try his level best to negotiate with each other and reach to a common conclusion to avoid conflicts and misunderstandings. In a win win negotiation both the two parties are benefited […]
Team Management – Meaning and Concept
There are some tasks which can’t be done alone. Individuals need to come together, discuss things among themselves and work together towards the realization of a common goal. The individuals forming a team should ideally think more or less on the same lines and should have similar interests and objective. People with absolutely different tastes […]
Classical Theory of Public Administration
There have been several discussions and arguments regarding whether public administration can be categorized as a Science or as an Art. During our discussion of the topic earlier, we had come across authors and social scientists who vehemently supported the cause that public administration was a science indeed and amongst the most notable supporters of […]
Understanding Team – What is a Team?
Let us first go through a simple real life situation. John was working as a key accounts head with a leading advertising firm. He had four members reporting to him. Unfortunately he always under estimated his team members and fought with them constantly. He could never trust them and always thought they were incapable of […]
P2P insurance, short for peer to peer insurance, is a relatively new form of insurance which has made its way to the marketplace in the developed countries. There are a number of characteristics which make P2P insurance different from traditional insurance. Some of these characteristics have been listed below.
Transparency: In case of traditional insurance, all policyholders deal with the insurance company on a one-to-one basis. This means that they have no reason to deal with one another. This leads to reduced transparency.
However, in case of a peer to peer insurance policy, people who know each other or share similar characteristics form their own group. Hence, all members know each other or at least can know each other. This creates more transparency in the P2P insurance model. Since people who know each other also tend to know the lifestyles and risk profiles of other similar individuals, the total risk profile of a P2P insurance group tends to be lower than the average traditional insurance group.
Less Fraud: In P2P insurance, all policyholders know each other. Hence, if one policyholder makes a fraudulent claim, they might be directly stealing from other policyholders. Statistics have shown that the number of fraudulent claims being filed in P2P insurance is very low. As a result, these groups don’t have to spend a lot of administrative costs trying to verify the validity of the claim. Lack of frauds and lower administrative costs make P2P insurance significantly cheaper than the traditional insurance model.
Refunds: Most policyholders believe that there is a moral hazard in the insurance business. They believe that since insurance companies exist for a profit motive, they will try to deny as many claims as they can. Also, if they do not pay out the claims, traditional insurance companies can retain the rest of the money as profit. On the other hand, P2P insurance groups refund the unused money to the policyholders. Since the P2P groups are not working with the profit motive in mind, they tend to be more liberal with the money they give out as claims. This is the reason why claimants have a better experience while dealing with P2P groups rather than with insurance companies.
Reinsurance: It is also important to note that P2P insurance is as safe as traditional insurance. This is because they pay for reinsurance. As a result, they have the cover from traditional reinsurance companies if the pool runs out of money and the members still need to make another claim. However, this is only a safety measure. Most of the times, P2P groups are able to pay out the claims from the pool. A refund is more likely than the group running out of money and trying to make a reinsurance claim.
The P2P insurance model is still nascent. It still faces a lot of problems which need solutions before the model can go mainstream. Some of the problems with the model have been listed below.
Customer Knowledge: It needs to be understood that P2P insurance is a difficult concept to explain. Traditional customers are used to giving away their money to insurance companies and then expecting the insurance company to deliver the service. The concept of P2P insurance requires vigilant and educated customers. The problem is that most people in the world have a problem understanding plain vanilla insurance products. It is unlikely that they have the time or the inclination to understand a complex product like P2P insurance. If they don’t understand the benefits, they are likely to stick with old age insurance companies whom they have tried and tested. Lack of trust will prevent them from switching over to new and volatile start-ups.
Different Risk Profiles: Also, P2P insurance only works when the people in the group have similar risk profiles. This might be difficult to maintain over a period of time given that the risk changes according to many factors, age being one of them.
If people having substantially different risk profiles are merged into the same group, it is highly likely that people who are careful about how they manage risks will end up paying more. On the other hand, those who are rash will end up benefitting from the arrangement. Since the P2P group is transparent, this may breed discontent amongst the risk-averse members. Over time, the group will only be left with rash members making the entire group unviable.
Scalability: Lastly, the insurance market is huge. For a model to become popular across the globe, it has to be scalable. The problem with P2P insurance is that the model is not scalable. The advantages of this model only work in a small-scale setting. If millions of people are added under this model, it may become unsustainable and may end up causing more problems than benefits.
The bottom line is that peer to peer insurance is still relatively new. It is unlikely to become the dominant insurance model in the world. However, it is still going to grow by leaps and bounds.
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