Pay-by-mile insurance
Metromile is trying to change the way low-annual-mile drivers pay for auto insurance. The 2014 San Francisco startup offers customers a free device that, when plugged into a vehicle’s OBD-II port, sends mileage data to the company via a smartphone app.
Vehicle data, relayed to insurers through dashboard plug-ins, is already used by companies like Progressive (Snapshot), Allstate (Drivewise) and State Farm (Drive Safe & Save) to evaluate driver behavior and offer special rates.
But Metromile’s Metronome (the name of it’s plug-in and app) relies more on miles driven than its competitors. Other insurers tend to weigh collected driving behavior such as speed and braking habits in determining premiums.
Metromile adheres to the common underwriting principles that larger insurers use, considering age, gender and driving history, but then sets a per-mile rate for each customer. Customers are charged strictly for the miles they drive, so drivers who drive very little end up paying very little.
Usage-based insurance (UBI) models have been slowly making their way into the industry, but only represent 10 to 30 percent of customers for traditional insurers.
Weighting its underwriting model toward miles driven, Metromile, in a way similar to car sharing entities like Zipcar that allow drivers to pay-as-they-go, is hoping to change the traditional cost-benefit analysis of car ownership.
Metromile’s CEO, Dan Preston, said the company’s strategy is to attract urban drivers who overpay for insurance — effectively subsidizing high-mile drivers — under their insurer’s current risk pooling formula.
The goal of UBI underwriting is to identify good, lower risk drivers and offer them lower rates, while assessing higher rates to the higher risk drivers remaining in the pool. However, if a company gives low risk drivers too much of a discount, insurers will not make enough money unless they raise premiums for the remaining high risk drivers. When they do that, they risk losing those customers to companies that have not yet moved toward UBI pricing. Metromile’s customers are all low mile drivers.
Metromile currently offers insurance only in Washington, Oregon, California and Illinois, and drivers can get a “two-minute quote” at the company’s Website. Preston claims that those who drive under 5,000 miles per year can expect savings of around 40 percent over a traditional policy and that anyone who drives under 10,000 miles annually will reap some savings. He advises that if you drive over 10,000 miles per year, conventional insurance would likely be cheaper.
Beyond the savings, low mile drivers can also derive some other benefits from plugging a Metronome into a vehicle’s OBD-II port. Preston recently declared in an interview, “The data that’s coming out of your car every day for a long time has only been accessible to your mechanic. Now, as a consumer, you have access to this data. By itself it may not mean much, but we can put it to work for you.”
By that, Preston means that they are constantly tweaking their app so that it can tell customers about mechanical problems, where their car is parked, if it’s in the way of street cleaners, how to find more efficient routes and more.
A big portion of your auto insurance premium is based on what might happen while you car is rolling down the road, with very little of that rate determined by what might happen while it sits in the garage or driveway. As a consequence, those whose vehicles sit most of the time may bear more than their fair share of the overall insurance pool’s expense. By determining who drives how much, Metromile is hoping to even the score for those drivers.
I am neither affiliated with Metromile, nor will I ever be able to make use of their services, since I won’t drive less than 10,000 miles per year ‘til I give up my license. But for drivers who leave their car parked most of the time, this business model makes sense.
The industry is definitely evolving, but don’t look for an instant transformation. Metromile has raised about $14 million in startup venture capital — or about the same amount that some of the large insurers spend on advertising each and every week.
Readers may contact Bill Love via email at precisiondriving@spokesman.com.
