Insurance in Today’s Sharing Economy: New Challenges Ahead or a Return to the Origins of Insurance?

Rego, Margarida Lima; Carvalho, Joana Campos

doi:10.1007/978-3-030-27386-6_2

Margarida Lima Rego^38,39 &
Joana Campos Carvalho^38,39,40

Part of the book series: AIDA Europe Research Series on Insurance Law and Regulation ((ERSILR,volume 1))

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1 Citations

Abstract

In the early twenty-first century, technology-based peer-to-peer (P2P) business models have been popping up, multiplying and succeeding. These business models set themselves apart from traditional business-to-consumer (B2C) models. This paper aims at identifying and outlining the new types of technology-based business models in use in the insurance sector. We began our quest in search of the new challenges to the law of insurance brought about by such business models and found ourselves face to face with some new takes on the oldest forms of insurance known to humanity.

The new business models we have analysed can be broken down into three different classes: the broker model, the carrier model and the self-governing model. The broker model and the carrier model rely on traditional insurance players but allow customers to take on part of the risks insured by the group they happen to fall into or choose to adhere to and take back a portion of their profits, or at least make customers feel like they are taking on those risks and taking back such profits. The leading characters in such models appear to play, to a large extent, the same roles traditionally ascribed to insurers and insurance intermediaries. Whilst they may incorporate P2P elements, they are not, in essence, true P2P models. We deliver a brief outline of some of these existing models and provide a more detailed account of an example thereof: the entity best known as Friendsurance.

We then move on to examine the self-governing model, where we believed the most innovative and challenging arrangements were to be found. We analyse the entity best known as Teambrella. After identifying the contracting parties in the self-governing model and their roles, our attention falls on the new challenges this model brings forward: do contracts entered into through these platforms qualify as insurance contracts? Should insurance regulation apply to them? These questions, we find, have been asked and answered many times over in the past. Hence our research ended up providing an excellent opportunity for a look back into the origins of insurance.

We do not dispute the disrupting potential of InsurTech’s new P2P business models. From an industry point of view, they may well provide a very significant contribution to the revolution of insurance as we know it. However, from an insurance law perspective, our main conclusion is that for the most part the new business models are simply recycling and optimising the potential of some old recipes by applying them in a new, digital setting. Whilst the small scale of traditional self-help mechanisms proved too parochial to cater for the more sophisticated insurance needs, the digital revolution gave rise to a global self-help community, thereby providing the earlier self-help mechanisms with a new stage where they can compete with stock-based insurers on an equal footing.

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Notes

1.
Although much has been written about the subject, there is no consensus around the definition of, or even the conceptual suitability of the expression ‘sharing economy’ (see Codagnone and Martens 2016). Some authors have found evidence indicating that the term ‘sharing’ has positive connotations of equality, selflessness and giving and is used to attach these ideas of positive social relations to what in fact are highly profitable commercial transactions (Belk 2014, p. 10; John 2013, pp. 176–177). Nevertheless, although scientifically not very rigorous, the expression ‘sharing economy’ is by far the most commonly used to refer to the object of our study, so we have chosen to use it, because it is the simplest and most immediate way of explaining what we are writing about (Sundararajan 2016, p. 27).
2.
English Oxford Living Dictionaries 2018, https://en.oxforddictionaries.com/definition/peer.
3.
Lougher and Kalmanowicz (2016), p. 2.
4.
Smorto (2015), p. 4.
5.
In another sense, it may also be characterised as wider than the first one if small and medium-sized companies are also allowed in, at least, when acting outside of their scope of business.
6.
Paisant (2015), p. 39; Carvalho (2018), p. 40.
7.
See National Association of Insurance Commissioners (2018). In July 2018, EIOPA published a “stakeholder survey on licensing requirements, barriers to InsurTech and InsurTech facilitation”. In this survey, P2P insurance is defined as a “risk sharing digital network or platform where a group of individuals with mutual interests or similar risk profiles pool their ‘premiums’ together to insure against a risk/to share the risk among them, and where profits are commonly redistributed at the end of the year in case of good claims experience”. The survey is available at: https://ec.europa.eu/eusurvey/runner/EIOPA_survey_licensing_barriers_to_InsurTech_InsurTech_facilitation.
8.
For Wilson (2017), p. 123, P2P insurance also provides an answer to the needs of a new generation that no longer wants a distant relation with the insurers, but seeks “personalized products, unrestricted access and assistance, and frequent and tangible benefits”.
9.
On its website, Friendsurance claims that “so far more than 80% of users have received a cashback. In the property insurance line, the average cashback has been 30% of the paid premiums”.
10.
Sagalow (2016), p. 6.
11.
Mutual insurance associations still play a very relevant role, especially in maritime insurance, where members of the International Club of P&I Clubs (protection and indemnity associations) purportedly provide in aggregate liability cover for “approximately 90% of the world’s ocean-going tonnage” (https://www.igpandi.org/). According to Clarke (2005), p. 44, “the mutuals together insure the owners (and many of the charterers) of some 98 per cent of the world’s ocean-going ships for their liabilities toward third parties – their traditional business”. According to the same author, “[f]rom the beginning the clubs have been in the forefront of innovation, undertaking novel risks that others were too conventional to recognize or too cautious to rate” (p. 45).
12.
Reciprocal insurance exchanges have been around in the United States since at least the 1880s. See Fitzgerald (1920), Norgaard (1964) and Reinmuth (1964).
13.
Orlovácz (2016), p. 191, points out that “online communities have reached a large enough scale for the mutual insurance model to work efficiently, this time not bound by geographical barriers”.
14.
National Association of Insurance Commissioners (2018).
15.
Holly and Greszta (2016), p. 58; Paperno et al. (2016), p. 1.
16.
This is the case especially in the carrier model that will be analysed in Sect. 3.2.
17.
This helps lower the administrative costs, Swiss Re (2016), p. 36.
18.
Holly and Greszta (2016), p. 59. See also Sagalow (2016), p. 7.
19.
Cappiello (2018), p. 40, stresses that “the knowledge and mutual trust of the members of the group means that there is a natural disincentive to fraud”.
20.
Yan et al. (2017), p. 254; Huckstep (2015).
21.
See EIOPA (2017), pp. 12–13.
22.
Although no empirical study has yet been carried out to confirm it, many authors argue that this model has benefits for the insurance companies: Yan et al. (2017), p. 254; Soberón (2016), p. 53; Marin (2016), p. 42; Holly and Greszta (2016), p. 59.
23.
National Association of Insurance Commissioners (2018).
24.
Carballa Smichowski (2015), p. 62.
25.
Turcotte (2017), p. 81, argues that most of the start-ups that use the concept of P2P insurance do not present a pure P2P model and not even a new model. The majority integrates an existing model into a new technological environment, allowing the subscription and claim presenting processes to be faster, increasing transparency and lowering management costs.
26.
Friendsurance 2019: https://www.friendsurance.com. Friendsurance (Alecto GmbH) is a licensed broker in Germany and has announced its plan to expand to Australia.
27.
Inspeer 2019: https://ve.inspeer.me/. Inspeer (Avenir Factory) is a licensed broker in France.
28.
VouchForMe 2018: https://medium.com/vouchforme/first-version-of-the-vouchforme-live-678f1ac89d99.
29.
The company wanted to step away from a deep connection to insurance: “After all this time, there were many circumstances where we have been mistaken for an insurance company, thinking we’re selling insurance policies or acting as a mediator between insurance companies. However, our brand represents a Blockchain based platform with an implemented social proof model, which can be used in various ways and through divergent industries”. VouchForMe 2018: https://medium.com/vouchforme/more-than-a-name-change-c41421b57b17.
30.
VouchForMe 2018: https://medium.com/vouchforme/vouchforme-partners-with-swissdacs-55e089a3cb7c.
31.
Lemonade 2019: https://www.lemonade.com.
32.
Guevara 2019: https://heyguevara.com.
33.
Alan 2019: https://www.alan.eu/.
34.
In 2017, Lemonade started expanding and offering services in several other states (https://www.lemonade.com/blog/lemonade-expansion-united-states/).
35.
See National Association of Insurance Commissioners (2018).
36.
See Shi and Geoghegan 2017: https://www.insuranceinsider.com/articles/114457/p2p-insurer-guevara-shuts-up-shop.
37.
Guevara 2019: https://heyguevara.com/. The website announces that a new website is coming soon and that they plan to shake up the way people do home, auto, life, motorcycle, and small-business insurance policies. Uvamo is another example of what was announced as a new U.S.-based tech-based start-up insurance carrier wishing to explore the P2P insurance model, but at this point, it is unclear whether it is still in existence. See a reference thereto in National Association of Insurance Commissioners (2018). See also Ben-Hutta 2017: https://coverager.com/end-line-uvamo/.
38.
Huckstep (2015).
39.
Samuelian 2018: https://blog.alan.eu/our-toolkit-to-raise-28-million-in-10-days-b40dc936084d.
40.
Robert 2017: https://blog.alan.eu/changer-la-donne-en-assurance-santé-8d62cfb96cd0.
41.
Teambrella 2019: https://teambrella.com/.
42.
Zwack (2017), p. 108.
43.
Although pure P2P insurance models are predicted to be on the rise, especially the ones using blockchain technology (Gatteschi et al. 2018, p. 9), most customers still value personal interaction (Ernst & Young 2012, p. 13).
44.
Paperno et al. (2016).
45.
See National Association of Insurance Commissioners (2018).
46.
Friendsurance 2019: https://www.friendsurance.de/agb.
47.
See § I.2-e AGB.
48.
See §§ 5 and 11 of the German Insurance Mediation and Advice Act (Verordnung über die Versicherungsvermittlung und -beratung). The law sets forth a third class of registered service provider: the insurance advisor (Versicherungsberater).
49.
Kemnitz 2017: https://blog.friendsurance.de/friendsurance-und-die-megara-gmbh-wir-klaeren-auf/.
50.
See § I.5-a AGB.
51.
See § I.5-c. AGB.
52.
See § I.5-a AGB.
53.
See §§ I.5-f and IV.2 AGB.
54.
See § I. 5-k AGB.
55.
See § I.5-i AGB.
56.
See § I.5-p and -o AGB.
57.
See § I.5-c. AGB.
58.
See § I.7-a AGB.
59.
Friendsurance 2019: https://www.friendsurance.de/beistandsvereinbarung.
60.
See §§ 6 and 7.1 BV.
61.
See Friendsurance 2019: https://www.friendsurance.de/ausfallversicherung.
62.
See Friendsurance 2019: https://www.friendsurance.de/ausfallversicherung.
63.
See §§ 3.3 and 4.1 BV.
64.
See § I.8-b AGB.
65.
See Friendsurance 2019: https://www.friendsurance.com/.
66.
See § I.6-a AGB.
67.
See § I.6-c AGB.
68.
Friendsurance 2019: https://www.friendsurance.de/beistandsvereinbarung.
69.
See § I.6-b AGB.
70.
See § I.6-e AGB.
71.
See § I.6-f AGB.
72.
See § I.8-a AGB.
73.
See § I.8-b AGB.
74.
See § I.8-c AGB.
75.
See §§ I.7-d and I.8-g AGB.
76.
See § 2.4 BV.
77.
Marano (2019), p. 13, suspects that if the new models of the so-called P2P insurance were to be scrutinised they might reveal an “emptiness of differences”, proving to be, in essence, no different from traditional insurance models.
78.
See Turcotte (2017), pp. 80–81.
79.
See §§ I.5-f and IV.2 AGB.
80.
Insurance has not been easy to define. Many attempts at pinpointing the essence of insurance have been made in the past, there being no consensus as to the minimum elements that should be present for a contract to be qualified as an insurance contract. In 1971, Wälder (1971), p. 23, very aptly remarked that prior attempts at defining the insurance contract already formed a ‘legion’. We are not closer to a consensual definition now than we were back then. Dismissing the need for a definition, Clarke famously remarked: “The English courts know an elephant when they see one, so too a contract of insurance”. See Clarke et al. (2006), p. 1-1. In any case, the payment of a premium seems to be a necessity: “a common denominator of usual definitions would say that insurance is a contract whereby, in return for a (variable or fixed) premium, one party, the insurer, promises the other party (the policyholder) to give coverage (by money payment or otherwise) under the conditions and within the limits stipulated in the contract, upon the happening of the (contractually defined) uncertain event”. Cousy (2012), p. 408. This is all but new. According to Dreher (1991), p. 37, the payment of a premium is unanimously characterised in Germany as a necessary element of an insurance contract. In Italy, see Scalfi (1960), p. 813.
81.
The following are statements made on its website: “Do you have a license to operate in my country/state? No, Teambrella is not a ‘business of insurance’: There are neither contracts nor obligations between insurer and insured in Teambrella. Teambrella doesn’t underwrite policies. Teambrella doesn’t keep clients’ funds; there are no money pools. Teambrella doesn’t make any payments to its clients”.
82.
See Recitals 8, 11, 12 and 16 and Articles 1(2) and 2(1)(1) and (2) of the IDD.
83.
Article 2(1)(1) of the IDD.
84.
See Recitals 6, 10 and 16 of the IDD.
85.
See Commission Notice on the definition of relevant market for Community competition law [Official Journal C 372 of 09.12.1997].
86.
See Turcotte (2017), p. 156; Scardovi (2017), pp. 170, 174; Swiss Re (2016); Marin (2016); Carballa Smichowski (2015), p. 68.
87.
Morrison and Mills (2016), p. 302. Specifically on mutual insurers, see Talonen (2016).
88.
Morrison and Mills (2016), p. 302.
89.
See Holly and Greszta (2016), pp. 53–66.
90.
Santarém (1552), First Part, Paragraphs 1–2.
91.
On these schemes, see Fitzgerald (1920), pp. 92–103; Norgaard (1964), pp. 51–61; Reinmuth (1964), pp. 641–646.
92.
See, for instance, Fitzgerald (1920), p. 92. However, in the past empirical studies have examined the relative efficiency of stock versus mutual and reciprocal ownership structures, generally concluding that mutuals and reciprocals are less efficient than stock insurers. See Mayers and Smith (1988), pp. 352–353 (and references included in notes 6–9 thereof).
93.
Fitzgerald (1920), p. 95.
94.
See Norgaard (1964), p. 57. As Norgaard puts it, “Reciprocal, a dictionary states, ‘implies a return in due measure by each of two sides…’, whereas mutual ‘… stresses a sharing equally and jointly rather than a return’” (p. 53).
95.
Norgaard (1964), p. 56.
96.
On InsurTech’s potential for exponential disruption, see Naylor (2017), pp. 1–40.
97.
See Naylor (2017), pp. 272–274.

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NOVA University’s School of Law, Lisbon, Portugal
Margarida Lima Rego & Joana Campos Carvalho
CEDIS – Centro de Investigação e Desenvolvimento sobre Direito e Sociedade, Lisbon, Portugal
Margarida Lima Rego & Joana Campos Carvalho
FCT – Fundação para a Ciência e a Tecnologia, Lisbon, Portugal
Joana Campos Carvalho

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Department of Legal Studies, Catholic University of the Sacred Heart, Milano, Italy
Pierpaolo Marano
Law School, University of Exeter, Exeter, UK
Kyriaki Noussia

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Rego, M.L., Carvalho, J.C. (2020). Insurance in Today’s Sharing Economy: New Challenges Ahead or a Return to the Origins of Insurance?. In: Marano, P., Noussia, K. (eds) InsurTech: A Legal and Regulatory View. AIDA Europe Research Series on Insurance Law and Regulation, vol 1. Springer, Cham. https://doi.org/10.1007/978-3-030-27386-6_2

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