Peer-to-Peer Insurance: What It Is, How It Works, and When You Need It

Peer-to-peer insurance allows a group of people to combine their resources to protect themselves against future risks (like car accidents). Learn how it works, including benefits and limitations to consider.

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Peer-to-peer (P2P) insurance is a risk-sharing system where a group of people with similar interests pools their money together to protect themselves against risks. The P2P insurance model is ideal for people with common interests, like family, friends, club members, and charities.

This type of insurance is becoming more popular among companies like Lemonade Insurance — one of the most recognizable examples of this insurance model. The following sections outline how peer-to-peer insurance works, the types, benefits, and pros and cons to consider.

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Key Takeaways:

  • Peer-to-peer insurance has an easier claims process and can be more affordable than a traditional policy.
  • Group members have more control over management decisions and can receive leftover premiums at the end of the policy period.
  • The P2P insurance model is challenging and limiting in states where self-insurance isn’t an option.

How Peer-to-Peer Insurance Works

Familly smiling in car

The peer-to-peer insurance model allows people with similar interests to form a risk-sharing network. Everyone puts funds into a shared pool so that when one person files a claim, the funds collected in the pool are used to pay it.

Unlike traditional insurance companies — which keep the remaining funds as profit — any unused premiums go back into the insurance pool for future claims, get paid back to the members, or go to a predetermined cause, such as a charitable donation.

The goal of peer-to-peer insurance is to:

  • Reduce operating expenses
  • Eliminate frivolous claims
  • Improve transparency and accountability
  • Limit conflict during the claims process between insurance companies and policyholders

Types of P2P insurance

The two main types of P2P insurance are the broker and insurer models. Let’s take a look at how the two differ.

Insurance broker model

This model combines personal contributions with third-party insurance companies. Money is available for small claim payouts, while the insurance company covers larger claims. Other than the insurance policy premiums, there are no overhead costs since the broker gets paid through commissions from the insurance company.

Insurance company model

With this model, an insurance company provides coverage and manages operations for a flat fee. If claim payouts are higher than what the group has invested, the insurer covers the difference through reinsurance (an insurance policy that covers the insurance company). You could pay more with this model, but you have a better chance of a claims payout since the reinsurance policy can offer better coverage and protection.

The key difference between the models is what’s covered. The broker model provides the same insurance type for group members with similar risks, such as liability insurance, coverage for household belongings, or physical damage coverage for your car.

The insurance company model offers broad coverage — like a standard car insurance policy — for groups with shared interests.

Peer-to-peer vs. traditional insurance

When you purchase insurance from a traditional insurer, the company uses your policy premiums to pay for claims. Insurers must make a profit to stay in business, which can increase the chance of claim denials or lower claim payouts so the company can make more money.

If the company isn’t profitable enough, it can request a rate increase from your state. If the state approves the rate increase, the insurer can raise your rates, even if you haven’t submitted a claim.

The peer-to-peer model is self-governed. Everyone involved puts money into a shared pool. Like mutual insurance companies — which pay out dividends to policyholders when the insurer makes a profit — group members get a portion of their money back if there are fewer claim payouts than money in the pot. Sometimes, the extra funds go to a preselected charity.

The best example of peer-to-peer insurance is Lemonade Insurance, which offers renters, homeowners, car, pet, and term life insurance in select states. Peer-to-peer car-sharing through companies like Turo and long-distance rideshares like Zipcar are other examples of P2P companies.

P2P insurance pools

Social networking and new technology have allowed like-minded people to collaborate to meet goals, including their insurance needs. If you’re looking for an alternative to traditional insurance, P2P insurance might be a good option. You can pool your money with others to lower insurance costs, improve service, and ensure claim coverage — but only in states where P2P insurance can meet financial responsibility requirements (more on that later).

P2P insurance pools can take many forms. People can combine funds to insure against a specific risk, like tornadoes or fires. They can also choose a type of insurance, such as auto insurance, or come together to support a cause, like a local nonprofit.

This crowdfunding initiative is similar to a GoFundMe, where many people provide small sums to help pay for someone’s medical treatment because their insurance won’t cover it or a local animal shelter puts out a plea on social media to help pay for veterinary care for a sick animal. You reach the same goal with the smaller efforts of many people in a more affordable way for everyone.

What Peer-to-Peer Insurance Covers

Family smiling in vehicle

Peer-to-peer insurance can cover any type of risk or insurance product the group members agree to fund — as long as it meets federal and state requirements. Depending on the claim risk, self-insurance may not be enough, so the peer group might also need to consider reinsurance or a tiered coverage solution.

For example, a broker purchases a high-deductible insurance policy, and the group pools together money to pay the premiums (and the deductible) if someone files a claim. The high-deductible policy is usually cheaper, so you can put savings toward the deductible fund, saving everyone in the group money.

What P2P doesn’t cover

What P2P insurance doesn’t cover will vary by the group’s terms and conditions. The group may not cover similar incidents traditional insurers exclude, like normal wear and tear, criminal activity, or intentional acts.

Peer-to-peer insurance may not be possible in states that mandate traditional auto insurance and don’t allow self-insurance.

When to Consider P2P Insurance

Anyone can create a P2P insurance pool if enough people share a common interest or are part of a group that can fund it. Family members, friend groups, small business owners, or people in a club or volunteer pool for a nonprofit may wish to band together to self-insure.

For example, if you’re a small business owner, P2P may be an affordable way to provide health insurance for your employees. You could also purchase insurance through a company like Lemonade, which has already proved a successful P2P model, rather than starting your own insurance pool.

Benefits of Peer-to-Peer Insurance

As with any new venture, you should consider the benefits and drawbacks. Here are some pros and cons of the peer-to-peer insurance business model.

P2P insurance pros

  • Premiums can be more affordable than with a traditional insurance company.
  • Unused premium funds go back to the group or to a charity.
  • The claims process can be easier, faster, and more streamlined, with less chance of denials.

P2P insurance cons

  • Limited availability because of state-level insurance requirements and regulations makes it difficult for P2P insurers to expand into all states.
  • Small groups may not have enough funds to cover claims, which could cause partial payments or denials.
  • Peer-to-peer insurance premiums could cost more than traditional insurance plans.

The Recent Rise of Peer-to-Peer Insurance

Family smiling in car

Peer-to-peer insurance has a long history, dating back to the late 1600s or early 1700s, when shipowners, merchants, and sailors pooled resources to cover their cargo through Edward Lloyd’s Coffee House. This later became an insurance and reinsurance risk-sharing marketplace, Lloyds of London.

P2P insurance gained more traction in 2010 with German insurer Friendsurance. This was created out of frustration with the traditional models, which are increasingly less transparent and efficient while being more expensive and offering less value and fewer coverage options.

The rise of social networks, fintech, and insurtech has also shed more light on the peer insurance model. It’s become easier to find willing participants who share common interests and goals and want a more affordable approach to risk coverage, especially when insurance costs are continuously increasing.

Companies like Lemonade, which uses blockchain and Bitcoin, may become more mainstream in the near future. Here’s how P2P insurers can use blockchain and Bitcoin technology to their advantage.

Lemonade and other P2P insurance companies

Lemonade is the first insurance company in the United States to buck the traditional insurance model for P2P. It uses popular technology like artificial intelligence and cryptocurrency to reduce overhead costs and speed up and simplify the claims process.

When you purchase insurance from Lemonade, you choose a charity. Your premiums pay for insurance coverage, and Lemonade takes a flat fee to run the company. After paying claims for the year, the rest of the money goes to the cause of your choice. The Lemonade Giveback program has donated over $8 million since 2017, with just over $2 million donated in 2023, according to the company’s website.

Use of blockchain and Bitcoin in P2P

The rise of blockchain technology and Bitcoin has increased P2P popularity because it allows peer insurers to lower overhead and administrative costs while making payments and recordkeeping easier. This reduces the chance of insurance fraud and makes it easier to detect, which helps lower insurance premiums.

Blockchain technology can also eliminate redundancy that customers may find frustrating, offering a method to personally identify themselves without the risk of providing sensitive personal information that could fall into the wrong hands.

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Peer-to-Peer Insurance FAQs

Peer-to-peer insurance isn’t a new concept in the insurance industry, but it can be confusing. We break down the concept further below by answering the most common questions about P2P insurance.

What is peer-to-peer insurance?

Peer-to-peer insurance is where a group of people pool their money together to cover potential future claims instead of purchasing individual insurance policies. Funds can be used to pay claims, returned to members, or given to a member-approved charity or community.

What are the advantages of peer-to-peer insurance?

The P2P insurance model streamlines the claims process and makes it easier for members to make claims since the insurer has nothing to gain from denying claims. Since the company isn’t looking to make a profit, premiums can be cheaper than a traditional insurer. Members can also make significant contributions to charities by donating unused premiums.

What is peer-to-peer prior authorization?

Peer-to-peer prior authorization is a discussion between a patient’s doctor and their health insurance company. The doctor calls the insurance company to get prior approval for a medical procedure or prescription.

Physicians can also use P2P prior authorization to request a second review of a denied prior approval. Prior authorization helps minimize costs and unnecessary procedures or medications while ensuring patient safety.

Is peer-to-peer insurance feasible?

It depends. Peer-to-peer insurance is possible in some states but can be challenging in states that legally require traditional insurance coverage. So far, Lemonade is the only insurance company in the U.S. to use the P2P insurance model, and its car insurance is currently only available in eight states.


  1. McKinsey & Company, “Blockchain in insurance – opportunity or threat?,” Accessed April 19, 2024.
  2. National Association of Insurance Commissioners, “Peer-to-Peer (P2P) Insurance,” Accessed April 19, 2024.
  3. National Association of Insurance Commissioners, “Reinsurance,” Accessed April 19, 2024.

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