Peer-to-peer insurance platform is a big challenge to traditional insurance companies

Peer-to-peer (P2P) insurance platform has been tested for a year in the regulatory sandbox of the Bank of Lithuania.  After one-year testing, the Bank of Lithuania has approved the concept of peer-to-peer insurance in Lithuania and introduced the Guidelines on Peer-to-Peer Insurance Operations (hereinafter referred to as the Guidelines). The fact that the Bank of Lithuania approves and supports the development of peer-to-peer insurance can be considered a breakthrough in the existing insurance market, and for investors it is a sign of a favourable regulatory environment and application of opportunities for innovative solutions.

New possibilities to peer-to-peer, InsurTech service providers

Although the peer-to-peer model is not new in Lithuania – it has been used in the financial market for a long time and has its own regulation, the provision of peer-to-peer insurance services in Lithuania is taking its first steps but immediately gives a lot of hope due to simple operations and possibility to quickly enter the market, to apply digitized, innovative solutions.

P2P insurance is based on the sense of community and is therefore similar to, for example, peer-to-peer lending platforms, whereby people are lending to each other.  In the case of the P2P insurance platform, its participants (residents or businesses) join into communities united by similar interests and share risks by pooling funds.  Loss compensation decisions are made by the community’s members themselves. If unused funds are still available in the pool after the compensation of all losses, they are returned to the community’s members.

The aim of the Guidelines of the Bank of Lithuania is to establish essential operational guidelines and good practices for peer-to-peer insurance providers and to seek for formation of a fair relationship with policyholders and consumers in the market.

Rather soft style of the guidelines and laconic regulation is a great opportunity for peer-to-peer insurance to adapt InsurTech solutions that would provide conditions for more efficient services to the end user, automation of solutions, and reduction of the value of insurance services.

A significant number of start-ups have evaluated the gap and started developing, implementing solutions that have substantial advantages over traditional insurance proposals, i. e. the focus is made on customized solutions and process digitization.

Why Lithuania?

Current Lithuanian legal environment, peer-to-peer and InsurTech allow us to seriously challenge traditional insurance companies and become a real and equal alternative.

There is no uniform regulation of peer-to-peer insurance in the European Union and peer-to-peer insurance service providers in different countries operate with or without a license of an insurance company, insurance intermediary, payment institution, mutual lending platform, but Lithuania takes a more consistent position and peer-to-peer service providers are not subject to a license requirement, which, in fact, means that today it is not  licensed participant, but in any case this does not mean that no requirements are met.

Thus, the favourable regulatory environment in Lithuania, Lithuania’s objective to keep with the strongest FinTech countries in the world, the desire to make insurance services more adapted to the digital age and promote innovation and competitiveness create favourable conditions for InsurTech, peer-to-peer investments in Lithuania.