1 June 2018
Do tradition and innovation mix? Benefits and risks for consumers of peer-to-peer insurance
Digital peer-to-peer (P2P) insurance platforms already exist, especially abroad. They are divided into three categories. Those in the first act like brokers, those in the second, like insurance companies, and those in the third follow a self-governance model. Apart from the platform itself, the latter are composed entirely of consumers. It is they who make all the decisions, from the formation of the group to the payment of compensation, with all the risks this can entail.
There are admittedly some advantages to P2P insurance platforms. The products are inexpensive, service is rapid (both in terms of obtaining insurance and compensation) and the consumers are relatively autonomous. In addition, the way these platforms operate promotes transparency. They also, , however, involve some significant risks. For example, consumers might misunderstand the product they are being offered, be tempted to make choices too quickly, or subscribe to a product that is not suited to their needs. In addition, there is always the risk of fraud.
These risks are magnified when the P2P insurance platform is not registered with the regulator and is not subject to oversight by insurance professionals, which is the case with the platforms that follow the self-governance model. With this kind of platform, consumers may have little recourse if problems arise and may not be compensated if the group opposes the claim. All this is particularly worrying in the context of insurance, where consumers are vulnerable and the consequences of an error can be catastrophic for their finances.
The regulation of workers in the insurance domain has three objectives: to ensure the stability of the financial system, to oversee certified representatives, and to ensure that consumers are protected by providing them with numerous rights and remedies. These objectives are considered essential in this domain. Our study reveals, however, that P2P insurance platforms perform actions reserved for professionals in the insurance industry. Consequently, if these platforms wish to do business in Canada, they will have to register with the regulator and be subject to regulation.
In Canada, regulators find themselves at a crossroads. They need to be proactive in order to protect consumers before P2P insurance platforms become available to a large number of Canadian consumers.
Option consommateurs recommends that regulators closely monitor the situation to ensure that no P2P insurance platform operates without the necessary permits and identify the best ways to protect consumers. It also invites the platforms to respect guidelines. Finally, it recommends that consumers exercise a high degree of caution with regard to these platforms.