If you're an up-and-coming automobile manufacturer (or InsurTech) looking to break into the auto insurance space, you may want to read this. Insurance isn't like manufacturing, it's not like retail, it's not like banking, it's not like anything else. But if you know a few things about the industry beforehand, you can save yourself a lot of grief later on.

If I were an automobile manufacturer and wanted to build an insurance product for my cars, it would be conceptually straightforward. I would come up with the unique coverage for my specific type of car and then price it accordingly based on the characteristics of my automobile. However, the reality is quite a bit different for some very specific reasons:

• Insurance is regulated by 50 independent departments of insurance.
• You don't get to arbitrarily decide what you offer and what you charge, unlike some other industries.
• Insurance isn't simply about my vehicle. There are other vehicles and coverages (such as physical damage, medical payments and liability) to consider
• My new car is an unknown and in terms of loss history, a biased study isn't enough to establish the cost of claims. Time is required to gain loss history data

Why so many departments of insurance?

Imagine if insurance was regulated like banking through a national agency such as the Securities and Exchange Commission (SEC). In Washington, D.C., government is theoretically run through the equal and level-headed representation of each state through Congress and the House of Representatives. In practice, that's not really how it works and certain large states (by population) have more influence over some issues.