I’ve blogged quite a bit about insurtech, big data, and similar hot topics of the day. You can search for those terms on my blog to read the articles. To be honest, much of what I have written about insurtech has not been complimentary…so why start now? 🙂

Last week, I came across a Facebook discussion about yet another insurtech startup that apparently is exploring usage-based CGL coverage. The discussion was based on an article that included this:

Besides the platform itself, the company has also designed an insurance policy of its own for contractors disinclined to sign up for year-long insurance policies that are typical on the market.

“I’m able to now buy a policy that operates more like a subscription,” said Nitschke. “If I wanted to buy a three-month policy… I could do that.”

At first glance, this might sound like a good thing for someone involved in a seasonal work activity. Several agents commented to that effect and if insurance professionals are impressed by such a model, you can imagine how logical and innovative (i.e., “disruptive”) this might sound to venture capitalists. Here is another article about the startup:

Bunker, which launched in beta in 2016, has attracted notice because of the gaps its products could potentially fill in the marketplace. Last year, for instance, it launched “usage-based” liability insurance for independent contractors. Instead of having to buy a one-year policy that covers them for all of their business activities, they can purchase a three- or six-month policy for use on a particular job. Independent contractors can buy policies for a single engagement, several engagements or all of their engagements.

“Let’s say for example if they are a management consultant working for Microsoft,” says Nitschke. He estimates the costs are about 20-30% less than buying traditional insurance.

I don’t know anything about the details of their program and perhaps it’s brilliant and practical, but on the surface, there appear to be potential holes in this business model. For example:

  • What about products and completed operations? This exposure exists year-round, 24/7. Just because the job is over doesn’t mean that the exposure to claims and lawsuits ends. Any contractor performing work under contract is almost certainly going to have to meet insurance requirements that include P/CO coverage and you can’t do that with a policy that is only effective during the job or for a few months.
  • Another issue is that, if the rating basis is sales or payroll, the premium is based on that total amount whether incurred in 8-9 months or throughout the year…a dollar is a dollar. So, from that perspective, one could argue (somewhat nebulously) that the insured is actually getting 3-4 months of “free” insurance in an annual policy.
  • And, how many carriers are going to re-underwrite, re-rate, and re-issue policies multiple times a year? At least without wanting additional premium for those expenses? That conceivably could make the premium even higher than an annualized policy…plus, the agency would have to incur additional processing expenses as well for the same (or close to it) commission as a one-time-a-year renewal.

Forget issuing certificates on every project…how about issuing new policies on every project! Who can afford to do that? And what happens if a job opportunity comes along on very short notice when a policy is not in place? These potential pitfalls remind me of uncovered claims I’ve written about with regard to auto suspension endorsements.

I can’t help but wonder if this startup understands what they’re doing, or perhaps it’s me that doesn’t get it?

Photo by jurvetson

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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