----- Forwarded message from Frank Forman <checker@panix.com> -----

Date: Mon, 23 Sep 2013 00:54:58 +0000 (GMT)
From: Frank Forman <checker@panix.com>
To: Transhuman Tech <tt@postbiota.org>
Subject: [tt] NS 2935: Forget premiums: A peer-to-peer network will cover you

NS 2935: Forget premiums: A peer-to-peer network will cover you
http://www.newscientist.com/article/mg21929354.300-forget-premiums-a-peertopeer-network-will-cover-you.html
* 22 September 2013 by Hal Hodson

People can now insure one another in peer-to-peer networks and do
away with big insurance companies and premiums

INSURANCE is an unfortunate fact of life. We pay large premiums to
cover ourselves for bad events that often never happen. But there is
another way. An online insurance firm called Peercover lets groups
of people insure each other on their own terms and at a fraction of
the cost.

Insurance is the latest financial service to get a shake-up from
peer-to-peer (P2P) dynamics. Already, individuals can lend money for
a return with interest. Similarly, people wanting to exchange
currency can avoid banks and instead use P2P services to find other
people looking to make the opposite trade.

"The changes in financial services that are happening now are
happening more quickly and dramatically than anything we've seen
over the last 100 years," says Ron Suber of peer-to-peer loan
company Prosper. "Peercover is a great example."

P2P insurance is simpler and cheaper than mainstream methods.
"People are paying profit and overhead to insurance firms when they
pay premiums," says Peercover co-founder Jared Mimms. Peercover
groups don't collect premiums. Instead, every individual in the
group has a stake - each is both insurer and insuree. The group's
founder sets the initial conditions for that group, including what
can be insured and the maximum value of an item. The payout for a
claim is split between all members but is only made when the
majority of the group approve the claim. The amount you pay out is
directly proportional to the value of the goods you have insured, as
calculated by Peercover's algorithms. Someone insuring a $400
cellphone will pay a larger proportion of a member's claim than
someone who is insuring a $100 cellphone, for example. Members who
fail to pay are ejected from the group and are no longer covered.

The reason all this is possible is, as with other P2P services,
because of the rise of new ways to pay online. "The kind of
insurance we're interested in wasn't possible a few years ago," says
Mimms. "It only became possible because of micropayments."

Behind micropayments are breakthroughs such as the virtual currency
Bitcoin and the payment network Ripple, which Peercover uses. Both
charge an extremely small fee for processing a transaction compared
with traditional models such as credit card companies, making
payments as low as 20 cents feasible.

Initially, Peercover's focus is on building groups to cover small
things like cellphones, and what Mimms calls positive insurance.
This is where a group pays out when a member reaches an agreed goal,
such as giving up smoking. But he has grander visions too, such as
health insurance, where large groups of Peercover users could
negotiate preferential rates for treatment.

"The technology allows for the potential of collective bargaining in
the negotiation of healthcare costs in which groups may band
together to practise some of the bargaining techniques used by
governments and traditional insurance behemoths," Mimms says.

Ellen Carney, an insurance industry analyst with research firm
Forrester, says Peercover points towards the future of insurance.
"It's very clever. This model is at the historical roots of so many
insurance companies."

She backs the idea that Peercover has the potential to change how
health insurance works in the US, although there are obvious
regulatory hurdles. "Health insurance in the US has a lot of
problems. You could see that this would be an interesting
alternative."

Richard Carter, CEO of financial software developer Nostrum Group,
says that data from sources such as social networks will play a role
in a peer-to-peer world. This won't just be in the form of finding
friends to go in with on coverage, but to judge unknown group
applicants too.

"Consumers need to learn that everything they put into the public
domain is going to be used to judge them in future, whether they
like it or not," Carter says.
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