Micromobility is one of the more notable emerging industries in the past five to ten years. For anyone who plan to launch their micromobility business, access to affordable micromobility insurance is always a big headache.
In today’s “Micromobility 101” lesson, we interview Justin Kozak, Vice President at Founder Shield – a full-service insurance brokerage representing early stage and high growth companies in emerging industries. Founder Shield placed the first policies for Spin and Jump and helped them scale toward their acquisitions, while also partnering with micromobility OEMs and software providers.
Let´s dive into the interview to learn Justin’s insights on micromobility insurance and how Founder Shield works towards its mission to empower cities’ urban transportation.
- Please tell us about what business does Founder Shield do and what is your offerings to the micromobility?
Founder Shield is a full-service insurance brokerage representing early stage and high growth companies in emerging industries. This means we represent our clients and help them find/manage the right solutions that insurers offer based on their needs and goals (or, we create them if they do not exist….)
Micromobility has been a major focus of Founder Shield. Aside from managing the insurance program for major operators, OEMs, and software providers, we have taken a leadership role in helping smaller players get started in the space as well through the creation of Fleet Shield. Fleet Shield is a risk retention insurance company to help drive the cost of insurance down for early/smaller operators while creating more scalability in relation to city insurance requirements and flexibility around business models. We do this by aggregating the risk of these smaller operators, in turn driving the starting cost to 40%-50% of the where the market rate currently sits for General Liability coverage.
- What role insurance companies, like Founder Shield, play in the whole micromobility industry?
Founder Shield, in my opinion, plays the role of partner and advocate in the micromobility space. On the partner side of things, as noted above, we represent our clients in helping them find and manage the right insurance solutions. On the advocate side, we are helping to move the insurance market to a more operator-friendly place.
Right now, insurance costs are high due to the industry being very young and the real risk of bodily injury. To drive these costs down and make them more palatable, we have taken two approaches:
- We have been successful in helping our clients negotiate with cities who may have excessive insurance requirements (the higher the limit, the costlier the insurance). We have put together scalability models to help determine the value an insurance product might provide to a fleet, and if those costs are excessive to the point that they may not make sense. With that, we assist in crafting the narrative to the cities on why limits should be lower (from both a cost and comprehension of risk perspective) while also setting out clients up for success in creating a road map for expansion focused on city requirements and available insurance options to comply.
- Secondly, as noted above, we have taken matters into our own hands to advocate for smaller operators by creating Fleet Shield – the first more affordable and scalable insurance product focused solely on micromobility fleets.
- Why is insurance important for a micromobility company?
There are two reasons:
First, the risk of injury claims is very real. We have seen all sorts of claims related to both rider and pedestrian injury on e-scooters and e-bikes, some better or worse than others, and insurance is the best way to transfer that risk. Quick educational comment – insurance does not prevent claims! We can help with risk management, and understanding how to avoid them, but ultimately insurance is intended to transfer the risk that comes with a claim (risk = monetary loss) to the insurance company who would ultimately pay out. The industry as a whole I think is putting safety as a top priority, but the risk of injury is still there, and insurance allows for a transfer of that risk so that these claims do not prohibit the growth of micromobility companies.
Second, while the above notes paints the picture of a “shield”, insurance can also be seen as a “sword” in this industry. Any city granting a permit to a micromobility operator will have insurance requirements (some with higher limits than others) and having the right, scalable insurance can be seen as an advantage in the RFP process or in winning a permit. If you have insurance that complies with a requirement, others might note, and that immediately puts you at the top of the leaderboard. I cannot understate the importance of understanding what cities your current insurance or how much insurance your budget can buy you as this allows for focused and strategic expansion planning to cities where you might have that leg up already on the competition.
- What insurance do people/companies need for their micromobility business?
The most important, and most commonly required coverage, is General Liability. On the highest level, this will be your coverage is there are claims related to injury to a third party (including the rider or a pedestrian). There are insurance products that exclude things like rider injury for example, but ultimately this policy should cover that exposure, so make sure you or your insurance broker (like Founder Shield) is mindful of policy terms.
Cyber insurance should be strongly considered as well. Customers/riders may enter their personal information like name, email, driver license, credit card, etc. A Cyber policy will address costs incurred following a data breach, including first party costs (internal costs like notification and credit monitoring) and third party costs (legal liability, regulatory action). Honestly, any business operating via an app should have this in place.
Many fleets utilize vans or trucks to pick up their scooters or bikes for servicing or rebalancing, so Commercial Auto coverage should be in place to address this exposure. If you own a fleet of vans for instance, it will be legally required to carry auto insurance. If you hire contractors who might use their own van or truck (which in turn the company does not own), then Hired & Non-Owned Auto coverage should be purchased. This will protect the company from auto claims related to a vehicle not owned by the company but being used for business purposes at the time.
Property insurance for scooter/bike inventory is a great way to protect the company’s assets as well. This is more applicable to “catastrophic loss” like a fire burining up 50 ot 100 units in a warehouse rather than one off losses, and can be seen as a “sleep well at night” type of safeguard.
- What are minimum insurance requirements for shared scooter/ebike operators when they enter the market?
At a minimum, General Liability will be required at a $1M per occurrence, $2M aggregate limit. Many cities bump this up however to say $2M, $3M, $5M or even $10M. They can also add an Umbrella requirement (which serves the same purpose as higher primary limits) as well.
- What concerns people the most when they think of buying insurance?
Surprisingly, at the onset, not the cost! Usually the biggest concern is “does this put me into compliance with these city requirements”? Operators in this space are eager to grow their business, and put scooters/bikes on the street. They are focused on winning permits, and what needs to be done to be successful in doing so, which is what we want!
That said, and maybe this comes as a surprise, but cost is not something that is thought about up front! Some operators might be blinded by the finish line or might have experience purchasing insurance for other, lower risk industries, causing a bit of sticker shock at the cost of this insurance. Cost ultimately does become the biggest concern, but I do urge early-stage operators to start thinking about that earlier on, before identifying cities to RFP for or apply for a permit for. First, understand your requirements, and talk to your broker about potential costs of compliance. All said and done however, the goal of Fleet Shield is to alleviate the cost concern and create a more attainable insurance solution in the micromobility space.
- What does the most typical insurance package look like?
General Liability is always the foundation of an insurance program for a micromobility company. Third party injury is the biggest risk, and cities will always require it.
As noted above, Cyber and Auto coverage usually rounds out the program, while other coverages like Employment Practices Liability or Directors & Officers coverage could be considered for more scaled up fleets.
- How do you think about the micromobility industry from the insurance point of view?
I think the industry is experiencing growing pains from the insurance perspective. It is a young industry, and insurers are usually hesitant to dive into that type of risk. A lack of loss history contributes to that hesitancy, while the lengthy amount of time for injury claims to develop fuels it. Ultimately, insurers want something like 10, 15, or 20 years of data to see how many claims they need to expect, who they come from, how long they take to play out, and ultimately what they cost. In such an early industry with such a legitimate risk of injury claims, this has caused inflated pricing due to lack of predictability.
But we understand the industry will not wait for insurance to come around, and as fleets will continue to break ground and grow. That is the idea behind Fleet Shield – address the current growing pains head on with a creative aggregated risk solution to keep costs in check and create scalability and sustainable operations. Not only do we see this as a more immediate solution, but also a longer term one as we believe the data and insights around losses/claims will only help the insurance industry as a whole to accelerate the predictability we are looking to achieve.
- What’s next for Founder Shield?
Big things! I am excited to say that Fleet Shield is live, in a limited capacity, but will be open in the next month. We are targeting 10 states to begin including NY, NC, TX, AZ, CO, NJ, FL, IL, CT, and CA. We expect availability in all 50 states and Canada in the future as well. Fleet Shield will offer $1M per occurrence, $5M aggregate coverage with options to increase the per occurrence limit as needed. This opens the door to more markets for smaller operators who might have higher than minimum requirements, while the cost is expected to start at 40%-50% of the cost of the current most competitive option in the market.
If you are an early stage fleet operator, or thinking about starting one, please reach out! We are excited to make our solution available, and look forward to being a part of our industry’s continued growth.