Captive Insurance & Hyperloops

Exciting technologies outpace common sense. New wonders sidestep traditional risk management assessments and create real questions for the capital markets. The hyperloop, promoted by the ever-exciting Elon Musk, is one of the great future technologies holding the world’s attention. The drive between Chicago and Cleveland is a 5 hour jaunt – hyperloops can reduce this to half an hour.


Arstechnica recently noted that hyperloops are being seriously considered by city planners looking to curb traffic and pollution. Innovation and government rarely work well together, but meaningful public transportation tends to be the exception to that rule. The New York City subway system, as an example, does a pretty good job connecting to the burroughs. However, that system is a truly public system in that taxpayer dollars are financing the effort.


The hyperloop is proposed by Elon Musk – a private entrepreneur. This creates serious concerns with regard to insurance. How do you insure a brand new technology developed by a private enterprise which links together multiple municipalities?


Enter captive insurance. Captive insurance is suited for new and poorly understood risks which are generally mispriced in the insurance market. Self-insurance solutions remedy insurance inefficiencies. There are numerous ways in which to use captives. The captive may take a layer of risk and lay the rest off to admitted carriers, or the captive may self-insure all of the risk. Risk financing arrangements vary from deal to deal.


Regardless, the hyperloop provides a great example of the potential of captive insurance. This new, promising technology offers the chance to significantly reduce transportation time and costs throughout metropolitan areas throughout the country. Since hyperloops are envisioned to be developed by private enterprises, the traditional insurance markets need to provide some form of risk financing to manage the risks. Yet, new technology creates new risks never encountered before. For example, the hyperloops depend on vacuum-powered tubes to shuttle passengers. How do the tunnels accommodate the loss of pressure? Are there risks to the infrastructure and passengers in the event of a sudden depressurization?


Further, will heat destroy or warp the hyperloop’s tracks? Insurance carriers need to see whether the engineers’ plans address issues with the expansion joints in the hyperloops. Changes in temperature change the shape of steel, which may create issues with transportation at the fast speeds through which the hyperloop travels.


Finally, hyperloops are uniquely vulnerable to terrorism. Terrorists frequently target soft targets with high profiles. Given the frequent promotion of the hyperloop, this infrastructure would demand significant security to ward off terrorist activity. This issue not only increases the costs of operations, but also introduces the mess of insurance issues related to the Terrorism Risk Insurance Program.


We depend on eccentrics to develop new technologies to thrust our society into the future. All innovation creates new risks and these risks can be insured. While traditional markets struggle to insure exploratory technologies, captive insurance companies can directly underwrite unique risks efficiently. Thus, captive insurance managers should be consulted when developing insurance programs for new industries and technologies.