Fintech (financial technology) has been redefining auto insurance in Rockford, South Beloit, Loves Park, and other Illinois cities. One of the most exciting innovations in the industry is the peer-to-peer (P2P) model.
Like P2P lending, P2P insurance aims to minimize the number of intermediaries involved in the matter and reduce the overall overhead for the benefit of the entire community. Most importantly, P2P insurance models allow funds refunds. If there is money left in the pool, members can retrieve their contributions.
Despite the undeniable charm of P2P insurance, it is not without drawbacks. Unknowing participants can fall into the hidden pitfalls of this fintech innovation. Here, let us discuss the most common dangers of taking the P2P route when buying car insurance.
It Might Not Save You Money
P2P insurance is all about cash redistribution. As mentioned, the money not used to pay for claims could go back to the digital wallets of each member of the community. The payout is usually annually and is given at the end of the year.
P2P insurance companies tend to offer more competitive rates. Having less overhead puts these fintech startups at a position to charge less and attract more customers.
But then again, P2P insurance platforms do not always guarantee savings. They can charge lower premiums now, but it does not mean they will not increase it in the future.
Furthermore, P2P insurance communities are not immune to costs. Each member has to chip in one way or another to help pay the bills.
It Can Be Subjective
Since P2P insurance communities put a premium on decentralization, the approval of a claim depends on multiple parties instead of only one.
It is a double-edged sword; P2P communities often consists of like-minded individuals who are in the same boat. Discussing the validity of a claim and voting together renders the P2P insurance business more of a democracy than a typical venture.
Other members are not incentivized to refuse your claim. However, the fact that you have to rely on several individuals to access the funds you need can make life harder for you. Since dozens of people might debate your case before a decision can be made, there is somehow uncertainty about the objectivity of the claim process.
It Is Purely Digital
P2P insurance companies operate almost exclusively on the Internet. Some of them might be headquartered in the United States, but chances are, they are too far from your city to visit conveniently. The app is the only thing you need to file a claim. More often than not, a chatbot will assist you. If you like service with a personal touch, you should stick to traditional insurers because you are not going to get it from P2P platforms.
It Can Be Illegal
Most, if not all, P2P insurance companies are currently not allowed to operate throughout the entire United States. If one does not have a license to do business in your area, you can be ripped off. If you encounter compensation problems, you can get less help from the government since there might be no rules in place to regulate such businesses yet.
Insuring your vehicle through P2P communities requires circumspection. Their models are novel, so there are few case studies available to judge their viability. Unless all P2P insurance issues are resolved, you might want to stick to traditional insurers for now.