Building a Team of Experts: Selecting the Right Carrier
This edition of the AV Insurance Blog focuses on understanding insurance in the AV space and the qualities that make a good carrier partner. As a growing AV company, what do you need to understand about the insurance industry, what questions should you ask, and how do you align yourself with an insurance carrier that will enable your growth?
First we should understand just how insurance carriers evaluate and price risk, how they make money, and why they’re interested in Autonomous Vehicle Insurance. Pro tip: most aren’t.
Insurance is method of risk transfer. The buyer pays premium to an insurer in return for a promise to be made whole following a catastrophic event such as an auto accident, a fire, or a lawsuit. Each business pays a little into the pool so when calamity hits one of them there are sufficient funds to allow them to survive.
Side note: this is why pandemic insurance has never been, and will never be, widely available in a free market. The potential damages are so great that the premium costs would have been unsustainable for businesses.
But how do insurance carriers actually make their profits? It’s the float! Warren Buffett explains it best:
“Insurers receive premiums upfront and pay claims later. ... This collect-now, pay-later model leaves us holding large sums — money we call “float” — that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. ...”
How are appropriate premiums determined? The insurance marketplace has spent hundreds of years insuring all ranges of industries. Data accumulation over that time period has been enormous. Actuarial modeling in mature industries is very advanced, and the integration of AI is improving this modeling constantly.
Surely, in such a data driven endeavor as Autonomous Vehicle Insurance the actuarial models are robustly deployed, incredibly accurate, and promote competitive pricing for coverage, right?
Wrong.
The marketplace for Autonomous Vehicle Insurance is in its infancy. It’s five years old. Your humble correspondent knows. I remember underwriters laughing at me in 2015 over my request to insure self-driving cars.
Current premium opportunities for carriers are small. There are but dozens of companies in the U.S. testing autonomy. Many with small fleets of one to ten vehicles. The amount of data collected and deployed has not reached the tipping point of fulling understanding the risk, to say nothing of the nuances in coverage (that’ll be another post for another day).
Five, six, or seven digit premiums are impactful sums for start-ups but pose an unfavorable risk/reward ratio to a commercial insurer against established industries with concrete loss analysis and higher premiums.
Insurance carriers are being forced to pay attention to Autonomous Vehicle Insurance regardless of available and mature data. Commercial insurance is a $600B+ industry in the United States, and almost half of the total is auto insurance. There is another $144B in personal auto premium annually.
Auto Insurance is a mature market that is about to be severely disrupted by ADAS, automation, electrification, and the sharing economy. Insurance carriers are interested in Autonomous Vehicle Insurance because of self-preservation. They need to understand what the future will look like and how to develop products to address emerging risk.
So what characteristics should you look for from an Autonomous Vehicle Insurance insurer and how do you spot them?
Knowledge
Don’t settle for an insurance carrier that says they insure autonomy, but don’t understand your vernacular. The underwriter should not be asking you to explain the basics of AV. Don’t expect engineer-level experts, but experienced underwriters are very savvy in the business operations of the AV space.
Investment
Does the insurer have an investment arm helping incubate talent in the space and share valuable data?
Is there an internal working group including executive leadership?
Does the carrier support trade associations and think tanks?
Services
An insurance carrier shouldn’t just collect premium and hope there’s not a claim. Good carriers will offer proactive risk mitigation services. While they’re not as expert in AV as you are, they do have more than 100 years’ experience in and around auto safety, fleet programs, driver training, etc. Take advantage.
Partnership
Find good people representing good companies that encourage and support your goals. I live by the business motto: “don’t work with assholes”. There are good people in this industry who are passionate about the AV space. Make sure you’re aligned with them.
Authority
Not all Autonomous Vehicle Insurance solutions are equal. There are enterprising underwriters that push ahead of their employer’s appetite in autonomy. This is fantastic, and helps advance the industry in the long-term. But it can lead to confusion on execution, lack of top-down support, and headaches in the servicing of a policy.
Finally, trust in the expertise of good Retail and Wholesale Brokers. They’ll guide you to the right place and make the process easier.
Shout out to some of IOA Innovation Group’s favorite partners in the space:
Allianz
