Through incentivising good behaviour, they also reduce insurers’ risk of loss: insurers appear to be willing to underwrite the risks introduced to them by P2P platforms for lower premiums on the premise that the ‘moral hazard’ risk is lower. Individuals are thought to be less likely to submit fraudulent claims when they are joined with other policyholders as their premium reduction is linked to others in their P2P network or group not making a claim.
Distributors of insurance products in the UK are required to be regulated by the Financial Conduct Authority (FCA), either directly or as an appointed representative of another entity with the appropriate permissions. The complexity of the regulatory regime in the UK in relation to insurance intermediation poses challenges to new entrants in the market which are not present in unregulated markets.
Concerns regarding data privacy, discrimination laws and whether customers are treated fairly will be relevant for both insurers using ‘Big Data’ and the likes of P2P networks. The FCA has already announced it is conducting a review in relation to the use of ‘Big Data’. It has also recently published a thematic review on its concerns regarding the general operation of delegated authorities and outsourcing in the distribution of insurance products to consumers.
The ultimate disruptive effect of P2P networks and other FinTech platforms and their legal and regulatory implications will manifest themselves clearly as the market adjusts to them and matures. The traditional insurance industry is aware of the threat of disruption from FinTech start-ups and insurers are beginning to respond but, thus far, insurers seem to be embracing opportunities FinTech presents rather than seeking to frustrate new distribution platforms and methods.
What is interesting is that both traditional insurers’ use of FinTech and the networks FinTech start-ups are attempting to launch demonstrate a trend away from the traditional broker-insurer distribution model to something more resembling the direct interaction between insurers and their customers as was the case in the 17th century in Edward Lloyd’s Coffee House.
This article was first published in Global Reinsurance, September 11, 2015.