Guevara is a London-based peer to peer (P2P) insurtech startup providing car insurance. Interestingly, Guevara is currently awaiting regulatory approval to offer its own policies, having launched in December 2013 as a broker.
How does Guevara work?
Upon receiving a quote, customers join either a private group with friends or one of 84 public groups (giving car insurance a socialist flavour which may or may not have received the approval of their revolutionary namesake). The premium is split between fees and a contribution to the group’s ‘protection pool’. Any claims made by group members are paid out of the pool, with the fees used by Guevara to purchase reinsurance cover. The split of fee vs. ‘protection pool’ varies by the size of group, e.g. 80% of the total premium for groups of less than ten members are fees.
On renewal the fee part of the premium remains the same. The ‘protection pool’ part is only charged to the extent to which the pool needs topping up. If the pool is fully funded (currently achieved at just over £1,000 per member) and the group has gone claims free for the year, this amount should be zero.
The main benefits of Guevara’s approach are typical of the P2P model:
- Lower combined ratios (Research by Swiss Re indicates mutuals have loss ratios c.20% better than market) for the insurer as people are discouraged from making exaggerated claims
- Lower premiums for customers thanks to better loss ratios and a more transparent link between claims performance and pricing
What does 2017 hold for P2P?
Lemonade recently dropped the P2P moniker. We believe that this is the beginning of a broader shift away from P2P towards a focus on more straightforward customer experience. (Lemonade commented in their blog that people found it confusing).
This is for three main reasons:
- Customers don’t understand the value. The potential benefits of the P2P model are complex. Interest levels in insurance aren’t high enough for people to want to find out.
- Fundamentally, insurance isn’t a social activity. The P2P model depends on groups of friends signing up together, but insurance isn’t exciting enough for people to want to do that. Customers want solid coverage at good prices with minimum fuss, not to be liable for a share of the costs of their friends’ dodgy driving.
- Social pressures are not as strong as predicted. This is especially true in insurer-created groups of strangers. The P2P model depends on low loss ratios and high retention rates, and outside of groups of close friends these aren’t delivered.
We wait, with interest, to see if Guevara follows Lemonade’s lead and plays down references to peer to peer in 2017.