A new startup in San Francisco is working to break into the highly competitive auto insurance market. They are underwritten by National General, a larger insurance company that was born out of General Motors (version 1) when they restructured during the GFC. That support is helping Metromile evolve its business to ensure it can be successful and get better underwriting deals for its customers.
What makes Metromile interesting for me is the way that they have approached the market – using a different set of metrics to define the price a customer pays to insure their vehicles. All insurance companies analyse the market and try to find the least risky customers to target, either through old fashioned ways such as age, vehicle, location and accident history of the drivers whilst others use new technologies to define the price. All the metrics used are plugged into an algorithm to produce the risk assessment and ultimately the annual cost.
Metromile, as it’s name suggests, uses the mileage driven by the vehicle to define the risk and therefore the price. It starts with a base fee (around $50 a month) and then adds on a per mile fee (around 5c) to give the final cost. Metromile suggests that there is a correlation between the amount of miles driven and the chances of an accident therefore can offer better pricing.
I think that there are two sides to this and I don’t fully agree with the supposition above. Firstly, there is the driver and secondly there is the vehicle.
Firstly let’s consider the driver. I don’t agree that a driver who drives less (both in time and distance) is one who is less likely to have an accident. By not having experience in many conditions means that the driver would not react correctly to an incident ahead of them. In some instances, the driver only knows a handful of roads and when put in a situation where the driver is in unknown territory, they could make a decision that causes an accident. An example would be where a driver is only used to driving in a small part of a city and then drives a longer distance in the country and suffers fatigue.
I have actually suffered from this, when as a teen I was involved in an accident with a driver who claimed that they knew the road that they were driving on, however had got complacent and wasn’t able to judge my speed and turned in front of me causing a head on impact. The argument they used in court was that they had driven that section of road for 40 years and knew it well. They had made an assumption that cars travelling in the opposite direction would give way to them, when in fact, the oncoming traffic had the right of way.
Secondly, let’s discuss the vehicle. For a family with a multi-car policy, Metromile may work well for some of the vehicles in the family “fleet”. For example, if the family has a commuting car, a family car that transports everyone to sports and school events and a classic sports car for weekend use, I could see that the insurance would differ for each car’s usage. This would work because the family car may be used far more that the other two and receive a higher premium than say the classic weekend car, despite being a cheaper car to insure traditionally.
Today, a family may have a multi-car policy where all cars share the risk despite one being driven in more riskier situations than the others. It is possible that the Metromile pricing would actually work out the same as a traditional multi-car policy.
Putting the onus on the vehicle to record the mileage driven then provides a different set of issues. I have a car, a motorcycle and I use a car-sharing scheme as well when I need a bigger vehicle for a few hours at a time. I could be classed as a high mileage driver, yet my vehicles have low mileage usage. I wonder how Metromile would deal with that?