The thing is its not really insurance. It would be spreading out the losses / gains.
Some of the schemes I have seen so far, is that you start rating the borrowers. And based on that rating, you choose the interest rate you will charge them. And that interest rate gains should be larger than the defaults. As a single person, most cannot accept 100% loss. But, collectively, if there is 3% loss on 5% loans, then you are making money.
There will be some loans that will put some collateral in escrow. And there will be some that just rely on people's good word. And, with the block chain, you can very accurately tell what a particular address' reliability is.