An innovative new sensor derived and triggered parametric insurance policy designed to cover auto dealer lots against hail storm damage has been launched by insurtech Understory, backed by MSI GuaranteedWeather and reinsurance capital.
Understory has developed and manufactured its own weather and climate sensors, which it calls the Dot sensor, to provide in-situ, real-time data that can be used for designing parametric insurance triggers.
This auto dealer focused risk transfer product is the first from the company, as it rolls out Auto – Hail Safe to enable dealerships to cover their hail risks, both in terms of physical damage from hail storms as well as elements of business interruption and other less tangible areas of coverage.
Understory believes that data-driven insurance coverage can expand coverage and provide a more relevant insurance product, something we’d entirely agree with.
The company says that its proprietary sensor technology can make available more cost-effective and expansive coverage, while reducing lengthy claims processing times, and enabling much more rapid payouts.
Understory has partnered with MSI GuaranteedWeather, the weather risk transfer focused subsidiary of Mitsui Sumitomo Insurance Co., Ltd. (MSI), to get its new Auto – Hail Safe product to market.
This means that there is capacity provided by MSI backing the product, as well as another unnamed tier-one reinsurance firm.
The product will be sold through brokers and for each policy Understory will install and maintain one of its rooftop Dot sensors at each dealership, enabling the collection of precise and localised weather measurements.
When sensor-measured hail conditions reach levels pre-agreed in the policy, it will automatically activate the policy and trigger payouts that come due meaning policyholders do not have to file claims paperwork in the traditional way.
“Understory is introducing a paradigm shift to the insurance industry,” explained Alex Kubicek, Founder and CEO of Understory. “Our precision sensors are the gold-standard of ground-truth weather detection. They enable innovative products and fulfill the promise of insurance digitization. We’re not talking about another weather app. We are talking about parametric insurance: a data-driven approach to financial risk, backed by long-time weather risk stakeholders like MSI GuaranteedWeather, along with a first-tier reinsurer, and many others. Customers finally have access to simple and cost-effective hail coverage— this is a truly disruptive way of doing business in a very traditional industry.”
“Working with Understory’s platform will allow MSI to stay at the cutting edge of the parametric weather risk management industry,” added Brad Davis, CEO of MSI GuaranteedWeather. “Combining cutting-edge risk models that allow for accurate pricing with precise detection ensures our customers get a reliable product that will help protect them against the worst that Mother Nature has to offer.”
Auto dealerships and car lots have been particularly exposed to hail events in recent years, resulting in it becoming hard to find insurance coverage in some states where severe convective storm activity is at its highest.
Car dealerships want all-encompassing coverage, to cover more than just the immediate physical damage to their facilities and stock of automobiles. Understory’s product can provide coverage for much more, with limits able to reimburse dealers for lost revenue, business closure, advertising or marketing costs, etc, as well as the damage to vehicles and building structures.
This is the beauty of a parametric risk transfer product, as long as sufficient limit is purchased the policyholder normally gets a much less-restrictive level of coverage, encompassing protection for more its business, than a traditional insurance policy.
The added benefit of a rapid payout is significant as well, with sensor-based triggers able to trigger the claims process immediately and without any claims paperwork being required.
Payouts are expected to be made within a fortnight of a Dot sensor triggering a claim, while the use of weather data and sensors will also allow the risk to be more accurately priced.
Understory’s Dot sensors measure data from every storm that passes, calculating both the maximum hail size and statistical hail size distribution, to derive the data used as inputs to the policy trigger.
The sensor can collect 125,000 measurements per second, including – but not limited to – Hail, Wind, Rain, Temperature, Air Pressure, Humidity, and Solar Radiation.
The data is is uploaded wirelessly from each solar-powered sensor, while networks of sensors can provide what the company terms a “living network” of sensors across a site, enabling richer data insights to be gleaned and likely more precise triggers for larger risks as well.
Given the extensible nature of the sensors and range of data they can collect, it’s no surprise that Understory wants to launch new product categories in time and is already working on rainfall, frost, heat and wind products, with industries such as agriculture, urban infrastructure and air quality a focus, Understory said.
Tony Fadell, Principal at Future Shape, an early investor in Understory, commented, “We invested in Understory five years ago (2014), because we knew that a weather satellite 22,000 miles above the earth can’t tell you exactly what is happening on your dealership lot, your vineyard, or your farm. The Dot sensor is the holy grail of data-powered insurance: solid-state, low cost, self-sufficient, networkable, stormproof, always-on. Combining Dot with Understory’s software network now allows the first of many ground-breaking parametric insurance products powered by Understory.”
David Ditgen, Managing Partner of AutoRisk Dealer Services, added specifically on the auto hail coverage, “In the aftermath of several destructive hail years, many specialty automotive insurance companies were forced to respond to economic losses by increasing premiums, retreating from certain parts of the country, or discontinuing dealership coverage programs entirely. As a result, many dealers are facing huge insurance cost increases, some exceeding 500%. Understory’s ground-breaking, technological approach to risk transfer for dealership insurance is unlike anything I’ve seen in 20 years and will enable us to provide a lifeline to auto dealers.”
As sensors themselves become increasingly ubiquitous, high-tech and small in size, the data they provide will become richer, increasingly accurate and more useful to the insurance, reinsurance and insurance-linked securities (ILS) industry.
This hail coverage is particularly interesting, as the lack of available limits and high deductibles seen for auto dealerships has been an issue for more than two decades and never been solved.
In fact, it was such an issue in the late 1990’s in Switzerland that an enterprising underwriter and bank teamed up to produce a coupon paying hail product specifically for car dealerships to protect themselves against hail losses.
Winterthur Insurance sold this WinCat Hail Coupon product to cover motor insurers in case of widespread hail damage, with the coverage paying out to a motor insurer should over 6,000 cars be damaged by hail on a single day.
It was seen as a product that could provide the responsive reinsurance protection that insurers needed to enable them to provide better, more expansive coverage to the motor dealers themselves.
Being a coupon paying subordinate bond product, the WinCat was sold to capital market investors as well, so had a lot of similarities with a hail risk catastrophe bond but were triggered by the occurrence of a storm meeting certain parameters, so provided a form of contingent capital.
As sensors such as Understory’s become more widespread and the data from them covers broader areas, it would be interesting to see if a parametric reinsurance product for auto insurers in the United States could be developed, as a way for the insurers to benefit from the availability of this climate data as well.