Much has been made over a predicted talent shortage in the insurance industry, with hundreds of thousands of seasoned professionals expected to retire in the next few years. However, a much more immediate shortage captured my attention this month when a popular children's toy reportedly sold completely out during the holiday shopping rush.
Addressing insurance talent gap
The number of such trucks manufactured each year "remains a highly guarded secret", but was once reported in the vicinity of 1.5M trucks. If every recipient of such a toy truck in 2017 one day worked in insurance, the industry would be well on its way to addressing the talent gap of the coming decade. Since the truck is marketed as "a learning tool to help teach core STEM concepts such as gravity, friction, leverage, velocity and more," why not teach insurance as well?
A debatably fun conversation to have with a child who has received his or her toy truck is how the total cost of vehicle ownership is far greater than the initial purchase price, and includes factors such as fuel, maintenance, and—most important to the conversation at hand—insurance coverage.
Total cost of vehicle ownership
What child would not want his or her vehicle repaired or replaced in the event it became involved in an accident? Traditionally, the premium costs of commercial auto insurance are usually governed by factors such as where a vehicle is operated, the nature of those operations, and the type of vehicle itself.
Given that toy trucks are typically driven by inexperienced operators amidst obstacles including coffee tables, wrapped presents, and other toy vehicles, it is arguably particularly susceptible to physical damages. The design of the vehicle and its ability to withstand damages are therefore critical to determining its cost to insure. It is questionable how much bodily injury or property damage a toy truck could inflict, so for purposes of this illustrative discussion only we will overlook important liability insurance considerations.
Three dimensions of risk analysis
Vehicle-related risk on commercial auto policies has historically been analyzed in three dimensions: cost, gross vehicle weight, and age. Toy trucks of the nature discussed here can typically be obtained with two Andrew Jacksons. Given that the average cost of comparable (life size) vehicles is reportedly on the order of $150,000, such trucks would likely achieve a substantial discount on physical damage coverage in the sense that lower original costs new tend to correlate with lower physical damage premiums. Moreover, the toy's weight of approximately two to three pounds would easily qualify it for many insurers' "light trucks" classification, which tend to receive lower physical damage rating factors due, perhaps, to greater maneuverability of the vehicle.
However, the vehicle's age would likely not qualify the vehicle for discounts, since the amount of deprecation in its value (and corresponding insurable interest) has thus far been minimal. These tried and true factors produce some sense of what drives a toy truck's insurance costs, but for a complex vehicle consisting of over 300 parts, considering insurable risk in merely three dimensions is arguably only scratching the surface.
ISO Risk Analyzer®
In 2017 ISO introduced ISO Risk Analyzer® Commercial Auto Vehicle Symbols in order to help insurers gain a more nuanced understanding of vehicle risk. Note that these Symbols are still in supply for those looking for last minute Holiday gifts for actuaries, underwriters, or data scientists within their circle of friends and loved ones.
Just as the Consumer Product Safety Commission typically regulates toys, departments of insurance have reviewed a recently filed ISO rating rule related to the Symbols, and over 35 have already approved or acknowledged the rule filing. The related approach to vehicle risk algorithmically considers dozens of attributes of each vehicle in forming a more refined prediction of the insurance losses that vehicle might incur for physical damage. Vehicles less susceptible to becoming involved in accidents, or ones that typically sustain less damage, receive preferred pricing. The Hess toy truck presents a compelling case in point to examine the workings of such an approach.
If one compares the 2016 and 2017 design of the very popular toy truck, it becomes apparent that the 2016 edition model features a "cab over engine" (COE) cabin configuration that results in a "flat face", whereas the 2017 version features a more conventional configuration with the vehicle's hood protruding outward. The Symbol approach described previously suggests the latter may better absorb impact in a collision, potentially making the former more costly to insure.
The 2016 edition also features a "crew cab" type body that appears large enough to feature two rows of seats, while the 2017 version appears to feature a more common "regular cab" body that would only allow for one row of seats. The Symbol approach suggests the latter may result in fewer accidents due to increased maneuverability of the vehicle.
Comparing truck models
Finally, the 2017 model appears to feature a higher and stronger bumper than the 2016 version. We do not have access to detailed specifications of either the 2016 or 2017 toys, but this brief initial analysis suggests even more favorable Symbol treatment in 2017 is a definite possibility.
The timeless tradition of the toy truck provides a perfect opportunity to stoke enthusiasm for insurance among the next generation. Insurance may lack a reputation for excitement, but its impact far transcends analysis of the mundane and somewhat tongue-in-cheek nature presented in this discussion.
Insurance provides critical refuge during the holiday season, where Christmas trees cause over 200 homes fires each year resulting in millions of dollars of loss according to the National Fire Protection Association.
No better gift
What better gift could there be, aside from perhaps a toy truck, than helping a family get back on its feet during an unfortunate time in their lives? Rating plan innovations not unlike Symbols for commercial auto have the potential to reduce unfortunate events by providing premium incentives to purchase or engineer safer vehicles, or homes, or businesses—which in turn can increase insurance uptake and fortify more policyholders against the unknown. Discussing insurance in the context of a popular children's toy is one way to fill this gap in understanding, and help address the looming talent gap that some may call the Ghost of Insurance Future.