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API Underwriting: A Perfect Solution for AVs & Robotics Insurance

The insurance industry relies heavily on data. Generally, the more data available about a risk, the better. This is particularly true for new types of risks, such as those associated with autonomous vehicles (AVs) and robotics. In the realm of insurance, data reigns supreme.

However, data collection is also the most challenging aspect of the insurance underwriting process. Why? First, there's physical friction: business leaders at tech companies must gather a lot of scattered information to complete an insurance application thoroughly. Second, there is a natural resistance to sharing data that could be perceived as proprietary, even when it isn’t.

Additionally, insurance is rarely a top priority for most companies. People are unlikely to drop everything to focus on insurance, leading to significant data collection challenges.

Fortunately, there is a solution to this problem: API Underwriting. This new method of collecting exposure data and performing insurance underwriting is efficient, secure, and user-friendly. We believe it is the future of insurance for autonomous vehicles and robotics.

In this blog post, we will explore what API Underwriting is, how it works, and why it is an ideal solution for the AV & Robotics market.

AVs & Robotics Market

One of our verticals focuses on autonomous vehicles, both on-road and off-road, and robotics applications, ranging from industrial use cases to next-gen mobile robots. We believe this is the next frontier that will revolutionize how the world operates. It’s not unreasonable to envision every business using some form of robotics product or service in the next 10 to 20 years. Consequently, this shift will move the nature of risk from humans to machines, and we are here to underwrite this new world of machines.

Although the market is still emerging, it already demonstrates a wide range of use cases. Here are just a few areas where robots can be employed:

The most important aspect of this market is that it is on the brink of immense commercialization. The reasons for this are clear: a universal shortage of manufacturing labor (especially in high-risk occupations), rising costs of goods and services (e.g., Uber now being more expensive than a regular taxi), and unacceptable fatality rates on U.S. roads (which are not decreasing despite the advanced safety technology in today’s cars).

Robots have the potential to address these issues effectively, driving adoption and substantial funding in this space.

Insuring AVs & Robotics

Typically, insurance lags behind the innovation economy. This is understandable given the nature of insurance, which often operates on a “wait and see” approach.

Unfortunately, this doesn’t help the tech sector, as insurance is often contractually required by customers, partners, vendors, investors, or the government. It’s challenging and sometimes uneconomical for newer tech industries, such as AVs & Robotics, to obtain adequate insurance at a reasonable price without much hassle. In today’s world, operating without insurance is nearly impossible, even in deep-tech areas like autonomous vehicles or robotics.

So, how do we make insurance work for such a challenging industry? The answer lies in data, as we discussed at the beginning of this blog post.

API Underwriting for AVs & Robotics

Let’s define API Underwriting before explaining how it solves insurance challenges for AVs & Robotics. API Underwriting evaluates insurable risk by collecting exposure and performance data via API in a continuous or periodic fashion. This can be done with all types of vehicles (ground, air, marine) as long as they can collect and transmit data, usually shared over a cloud or cellular network.

When data is collected via API, underwriting can be done automatically (imagine data flowing through specific parameters and providing a result that aligns with a benchmark for risk assessment) or manually (where an underwriter evaluates the output and makes a decision).

How does API solve the underwriting challenges for autonomous vehicles and robotics? API integration allows underwriters like Koop to access unprecedented levels of utilization and performance data directly from vehicles. This is key to understanding and estimating risk.

Why can’t this be done using traditional methods like applications and spreadsheets? Collecting the level of detail and volume of vehicle data required is impossible with paper applications and spreadsheets. Additionally, the data must be structured to effectively propagate through the actuarial engine. Traditional methods are simply not suitable for the data needs of autonomous vehicles and robotics. Imagine accessing hundreds of data fields sent every second from a fleet of robots, automatically analyzed for underwriting. This simply cannot be done with paper.

The next logical question is: Quantity doesn’t mean quality, so how do we know we collect the right data? In other words, how do we know the data matters for insurance underwriting?

There is an undeniable statistical relationship between risk (or the probability of an insurable event) and the performance of the asset or company (example). Better performance correlates with a lower probability of an accident. We delve deeper into this in our three-part overview of AV underwriting methodology: Part 1, Part 2, and Part 3.

Performance is the ability of a vehicle or robot to perform its intended function without disruption, whether big or small. Think of it as a troubleshooting rate or error rate.

Utilization measures the time, mileage, or number of jobs performed. For AVs and robots, we look at fleet utilization.

Operating domain refers to the environment in which an asset is deployed, whether public roads or closed-course warehouses. The operating domain adjusts the evaluation of performance and utilization; for example, a mile driven in a warehouse differs from a mile driven on a public road in San Francisco.

API allows us to seamlessly pull performance, utilization, and operating domain data from a fleet of vehicles or robots. This compensates for the significant lack of historical accident data in this space. Fortunately, there is an abundance of performance and utilization data to estimate risk for AVs & Robotics. We estimate that API Underwriting can improve liability insurance premiums by 10% to 40% compared to market levels already today, based on our experience. It’s not unreasonable to see the premiums drop 50%+ as AVs & Robots continue to improve exponentially.

What’s Coming

As AVs & Robotics enter the real commercialization phase, insurance and risk management will quickly become crucial. Not only is insurance contractually required by customers and partners, but business interruption will become a major concern as companies increasingly depend on automation. This is where insurance becomes a deal-breaker.

API Underwriting offers a clear solution to the burden of non-technical insurance processes that lead to excessive costs and untraceable compliance. The best part about API is that once integrated, it runs seamlessly. 

Our vision is that API Underwriting will become the default method for AV & Robotics underwriting due to its economic benefits. And, of course, because data is king in insurance!