Tech's peer-to-peer model is coming for insurance

Rawpixel Ltd. | Getty Images

The same innovation tech brought to finance and consumers is coming for what the U.S. Treasury calls the $1 trillion-per-year domestic insurance market.

Much like the way Groupon leveraged the buying power of groups and peer-to-peer lender Lending Club cut out the middle man to offer lower rates for borrowers, new start-ups are looking to lower insurance premiums and open the door to outside investors. (Tweet This)

In some cases, it's even the same group of people. Visar Nimani, Lending Club's former CTO, spent months with his team—including fellow Lending Club alumni—exploring how to apply the same marketplace they built for loans to the insurance sector at his new start-up, Uvamo.

"Insurance companies obviously make significant amounts of money, they run commercials," he joked. "But the average investor hasn't had a way to get involved with that." Uvamo wants to change that.

Read MoreWhere will you pay the most in car insurance?

How would it work?

Today, the insurance business tends to have high overhead costs, and too much of the premiums consumers pay aren't purely going into covering losses, Nimani said.

Uvamo, which plans to launch by the end of the year, aims to cut administrative costs by offering property and casualty insurance direct to consumers online. Those policies can then be diversified and grouped into a pool, which collects all the premiums paid by the policyholders.

There's also an opportunity for outside investors, who can invest money to back that pool of policies, making up the required capital reserve.

Investors—and Uvamo—profit from whatever money's left in the premium

via www.cnbc.com