Comment by Eridrus | Hacker News Reader

Comment by Eridrus | Hacker News Reader

Parent Full thread

Thanks for the article, I assume you are the author.

I think the main question about Corgi is: are they underpricing risk so severely that they go bust? And honestly, we have no idea.

For all we know startups are buying overpriced insurance from Corgi because they have a better brand and are easier to deal with than Berkshire's army of underwriters.

Though it's also worth noting that the main reasons startups buy insurance is not because they want insurance, but because enterprise customers demand insurance. Which is to say, it's not out of the realm of possibility that funded startups are not actually that price sensitive, because they just want to get the deal signed and move on.

We got our insurance elsewhere because we're a little older, so I have no actual opinion of Corgi, but there's a lot of stuff that enterprise customers demand that is driven by some compliance checklist. Delve took this to an extreme, but directionally, they were providing the service customers wanted, and at least in the insurance market, you can just pay more to paper over your problems rather than addressing the core risks in a way where there is no fraud. We pay for random shit we don't need that delivers no value for enterprise customers to tick boxes, for all I know Corgi fills the same need.

Yes, I am the author.

Yes, insurance is mostly a box ticking exercise for most startups. My concern with Corgi is that even after accounting for how unimportant insurance is to startups, they are so blasé about their underwriting that for the small number of startups that will eventually need the protection insurance offers, there is a substantial amount of exposure to Corgi going under.

A typical startup needs D&O insurance to satisfy their investors -> the startup approaches Corgi -> Corgi's sales team negotiate more comprehensive insurance that covers many more of the risks that the startup faces that would not be insurable by traditional underwriting -> the startup uses their insurance coverage to justify risk taking.

Historically, the type of risks startups took were of little legal consequence but that has changed with AI. The social and political appetite for taking down AI companies is only getting stronger. We're already seeing OpenAI and Character.AI subject to multiple lawsuits over teenage user suicide.

All it takes is a single large judgement against a single Corgi insured company to liquidate the whole Risk Retention Group and then any ongoing litigation that Corgi was covering, is suddenly uncovered, and uninsurable elsewhere. The potential fallout from a startup losing coverage mid-litigation could be substantial when that litigation is government sponsored, the corporate veil isn't very useful when a government is looking to make an example of a company.

Multiple Corgi customers are already involved in expensive litigation and while I believe that is not covered by their Corgi policies because it predates Corgi's launch, it is a sign that expensive litigation is well within the realms of possibility for their customers.

I think that's a reasonable concern, but I feel like there's no meat to this accusation in in the article.

They found a way to sidestep regulations in a non-traditional way, they're using AI for underwriting, but like I said, there's no actual evidence the underwriting is wrong.

Is a startup gets insurance for something they couldn't get insurance for elsewhere and then Corgi goes belly up, the startup is our their premiums but otherwise in the same place.

For all we know, there are multiple risk groups under the hood for different risk types/profiles to insulate mispricing of different policy types.

Honestly, I feel like startups don't buy insurance at all unless customers ask, there's just nothing meaningful there to insure. If you fuck up that badly you're probably just going to go out of business even if the insurance check comes through.

I agree that insurers definitely faces the urge to underprice risk because the shoe will drop later, but there's no actual evidence here that they're mispricing risk of that people buying it really think it's going to save them if they do something risky.

> Is a startup gets insurance for something they couldn't get insurance for elsewhere and then Corgi goes belly up, the startup is our their premiums but otherwise in the same place.

That’s not accurate if the startup is making a claim against their insurance. And even in cases where the startup hasn’t yet filed a claim, losing insurance that cannot be replaced could be catastrophic. Corgi are insuring things that are uninsurable elsewhere. If your startup relies on being insured against hallucination risk, and you lose your hallucination risk insurance, then what?

> For all we know, there are multiple risk groups under the hood for different risk types/profiles to insulate mispricing of different policy types.

There aren’t and there can’t be. A Risk Retention Group requires that all insured parties are equal members, Corgi cannot divide customers up based on risk profile. The entire premise of a Risk Retention Group is the risk is shared across all members. Hence, it is wildly unsuitable for how it is being used by Corgi.

> Honestly, I feel like startups don't buy insurance at all unless customers ask, there's just nothing meaningful there to insure.

Newfront built a $1.2bn business on startup insurance.

> If you fuck up that badly you're probably just going to go out of business even if the insurance check comes through.

We live in a brave new world. Startups are doing more and more politically and socially risky business, like AI medical advice. You are assuming that a startup being sued and losing their insurance is whatever, just shut down the company, but the founders are at risk, and losing legal coverage mid litigation has a material impact on their ability to defend themselves. Good lawyers can keep founders out of prison, no lawyers cannot.

> I think the main question about Corgi is: are they underpricing risk so severely that they go bust? And honestly, we have no idea.

You should read up on what a risk retention group is and how it works. To me, it's even worse than you think.

> For all we know startups are buying overpriced insurance from Corgi because they have a better brand...

Is this tongue in cheek?

> ...and are easier to deal with than Berkshire's army of underwriters.

Or they provide "insurance" for things that the world's most experienced insurers don't want to touch, or won't touch without a lot of underwriting. Which in itself is a red flag.

> You should read up on what a risk retention group is and how it works. To me, it's even worse than you think.

I did some basic reading but don't really see anything particularly wrong with them.

AFAICT, the argument being advanced against Corgi is that insured customers might be doing risky things assuming their insurance will bail them out. This just doesn't ring true to me because I think most startup founders are just willing to accept more risk and accept that sometimes that includes legal risk.

When you look at Corgi's marketing, e.g. https://www.corgi.insure/ai what you'll see in the common risk triggers is basically compliance: AI Safety Audits, VC due diligence, EU Regulation. It's basically all about showing other people that you're "doing something", not because you think you need or want insurance.

I think the comparison to Delve is actually quite apt: startups generally do not care about SOC 2, they just need the checkbox that their customers are asking for. And startup's customers often themselves don't really care, they are just doing it to satisfy their own SOC 2 requirements, ad infinitum.

I think the main people that are being potentially deceived here are not Corgi's customers, those customers' customers, but I don't think they truly care either and are also checking a box.

Reply on news.ycombinator.com