Comment by reticulates | Hacker News Reader

Comment by reticulates | Hacker News Reader

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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.

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