• Threat of InsurTech to Conventional Insurance Industry: Comparative Analysis of Online Risk-transferring Platforms

Abstract

Based on consumer’s expectation utility, this research compares online risk-transferring platforms and the conventional insurance mechanisms using economic models. The research findings indicate that when the scale is suitably large, the function of online risk-transferring platforms is similar to that of insurance companies with low loadings. Moreover, consumers’ expectation utility increases with the number of users. When the number of users is higher than the critical number of users, the utility of online risk-transferring platforms is greater than that of the conventional insurance mechanisms. In addition, it is more efficient for each user to share the cost of moral hazards on online platforms than it is to add the cost of loading in conventional insurance companies. However, the promotion of online platforms is subject to failure when risk probability differs substantially among individual users. In light of online platforms’ comparative advantages of low cost, low entry barriers, and relatively few limitations, these platforms may incur devastating effects on the conventional insurance industry.

Keywords: FinTech, InsurTech, Network Platforms of Risk Transfer, Decentralization