Author: Brandon Schuh, Senior Vice President at U.S. Insurance Broker Christensen Group
2024 has been a challenging year for everyone in the micromobility sector. The once-pioneering Bird has declared bankruptcy, and Superpedestrian, which promised cutting-edge technology and efficiencies, failed to deliver. Both companies suffered from a lack of foresight, believing their investors would never abandon them. As they faltered, they left their partners, particularly insurers with unpaid premiums and a slew of open and future claims, creating a significant liability issue.
As a result, the micromobility insurance market has become destabilised. This pattern is not uncommon in high-risk industries, which often go through phases of insurance participation. Drawing from my experience at Christensen Group and as a former Risk Manager for a ladder manufacturer, industry transitions in capital providers and carriers are expected. In the 1990s, the ladder industry faced a similar shift when Kraus filed for bankruptcy, leaving Home Depot and its insurers with significant litigation. Consequently, Home Depot now requires ladder companies to carry $20 million in insurance coverage, the highest retail requirement in the U.S. Such actions spur reactions, and we foresee a similar transformation in micromobility.
Similar to how Home Depot responded to the actions of Kraus, we expect the insurance market to respond in quite dramatic fashion. There are already hints of this happening. Our projection is similar to what we have seen in other high severity/frequency lines of business, which will be a big draw down in line sizes. Meaning, instead of your carrier putting up $5 or $10M, you’ll see smaller line sizes – closer to $1M or $2M tranches. We also expect changes to pricing. With the drawdown in capacity, we don’t actually expect a big decrease in pricing. That pricing that you were paying for the $5M or $10m excess programme might decrease by 30% but it won’t be commensurate with the drop in limit. So where you might have been paying $500,000 for $5M in limit, you might now be paying $400,000 for $1M in limit. In addition to premium and capacity changes, we also expect to see a lot more collateralization requirements. As we’ve alluded to here above with carriers sustaining significant financial losses from Bird and Superpedestrian, you can be sure that there will not be a round II of financial losses. This means that carriers that are sharing risk with insureds through large retentions, deductibles and coinsurance, will be ensuring that – should a company go out of business – they will not be holding the risk at the end of the day. No Kraus ladder repeat here. Well, not again at least.
The new Risk Protection Group
In light of the anticipated changes in insurance capacity, Christensen Group is doubling down on this space. We plan to invest heavily in addressing the challenges faced by mobility operators. Smaller operators, unlike Lime, struggle with insurance costs due to their lack of scale, previously relying on investors to subsidise unprofitable operations. To meet the new demands, we aim to provide scalable insurance programmes through a variety of strategies. One of those strategies is building a Risk Protection Group (RPG). An RPG allows previously unconnected companies to purchase insurance collectively, benefiting from the spread of risk and achieving necessary scale. This approach has been successful in other industries like exercise facilities, franchisees, healthcare and trucking. All of which face similar challenges with severe or frequent claims. In essence, insurance relies on the law of large numbers to cover claims effectively. A broad risk spread without adverse selection is crucial, and that’s the direction we’re taking to support the evolving micromobility landscape.
We’re looking at a variety of other avenues too. Not every solution will be a fit for every operator. We’ve begun looking at a variety of fronts that will, in hopes, help to buffer carriers by the operator taking on more risk in more formalised funding mechanisms. Whether that be fronted options, captives, coinsurance, or other risk financing opportunities.
‘Expected Pains’
There is no blame being asserted here. If anything, it’s empathy. The dynamics, size and scope of the micromobility space is very nuanced. In addition, it’s going through a revolution in terms of standards, laws and regulations that are being developed to catch up with such a young and growing industry. These are expected pains, but pains nonetheless. So it’s our job to assist in reducing some of this pain and making the barriers to entry a bit less burdensome for operators and entrepreneurs looking to participate in this market.
Our team at Christensen Group has also felt the impact, but we don’t see this as a systemic issue. Instead, we believe micromobility is at a seminal moment. This year has forced companies to rethink their strategies, reallocating funds, shifting business models, and focusing on profitability over growth. Despite these challenges, McKinsey and others predict significant growth, forecasting the global micromobility market could be worth more than $500 billion by 2030. This growth is driven by urbanisation, environmental concerns, and technological advancements. It’s clear that micromobility is a sector to embrace, not avoid.
