{"id":827,"date":"2015-09-15T01:06:19","date_gmt":"2015-09-15T05:06:19","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/metromile-why-pay-for-something-you-dont-use\/"},"modified":"2015-09-15T02:18:25","modified_gmt":"2015-09-15T06:18:25","slug":"metromile-why-pay-for-something-you-dont-use","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/metromile-why-pay-for-something-you-dont-use\/","title":{"rendered":"MetroMile \u2013 Why pay for something you don\u2019t use?"},"content":{"rendered":"

Today, Personal lines insurance is being disrupted by new, telematic-enabled products whereby customers are willing to give over their data in search for fairer-priced products.[i]<\/a> MetroMile, first launched in Oregon in 2012, is seeking to capture a share of the $200 billion auto insurance industry with its Metronome device that plugs into a car\u2019s OBII port (or MetroMile tag linking directly to mobile phone application through Bluetooth technology) that tracks mileage data to determine how much a person should pay for their auto insurance policy. Furthermore, this device is transforming a car into a smart car with many personalized, value accretive features such as engine diagnostics, fuel insights, commute optimization, car park finder, and street sweeping notifications. While MetroMile is disrupting traditional auto insurance pricing algorithms and creating more transparent and fair prices, its greatest value is likely to derive from the information flows and data that it is capturing between the driver and his\/her car.<\/p>\n

MetroMile offers pay-per-mile auto insurance on a retroactive basis and is currently being offered in California, Illinois, Washington, Oregon, Virginia, and Pennsylvania. Traditional auto insurance companies average their costs across their entire customer base. Such risk diversification strategies result in infrequent drivers, estimated at 65%, subsidizing the insurance costs of the minority who drive the most.[ii]<\/a> Policies are sold through MetroMile Insurance Services, LLC (a Managing General Agent) and underwritten by National Insurance Group. MetroMile targets customers who drive less than 10,000 miles per year \u2013 customers in cities with good public transportation systems and infrequent drivers in suburban areas.<\/p>\n

Transparent Pricing<\/em><\/strong><\/p>\n

Monthly premium is calculated from a base rate plus a per-mile rate. Customers are given a monthly base rate determined by traditional underwriting risk factors such as drivers\u2019 age, driving record, etc. This base rate is approximately 30% of what a driver typically pays for their auto insurance policy. The per-mile rate is on average 5 cents\/mile and is added to the base rate at the end of each month.[iii]<\/a> As auto insurance companies are getting more complicated with their pricing algorithms, MetroMile is looking to offer more transparency and a truly individualized product that meets the needs of the driver.<\/p>\n

Competitor Differentiation<\/em><\/strong><\/p>\n

MetroMile Pay-Per-Mile is similar to Progressive Insurance\u2019s Snapshot<\/a> and other Top 10 auto insurers that are offering Usage Based Insurance (UBI) with data-driven discounts. Most UBI products take into account customers\u2019 driving habits in the pricing of the auto insurance (rapid acceleration, hard breaking, etc.) whereas MetroMile solely focuses on mileage data. Boston-based insurance consultant Strategy Meets Action (SMA)\u00a0claims that UBI will grow rapidly, making it difficult for traditional auto insurance companies to maintain their market share.[iv]<\/a> VisionGain Global predicts the UBI market share to be $60 billion in premiums by 2020 with 21.7 million policyholders in 2015 up from 12.2 million policyholders in 2014. [v]<\/a><\/p>\n

\u00a0<\/em><\/strong>Insurance for Ride Sharing<\/em><\/strong><\/p>\n

\u00a0<\/em><\/strong>MetroMile has recently partnered with Uber to deliver auto insurance to their drivers when they are off \u2018Uber\u2019s clock.\u2019 Uber drivers are covered by Uber\u2019s commercial insurance policy<\/a> with $1 million of coverage per incident but only for the duration of a trip \u2013 accepting a trip \/ customer is in the car (referred to as Period 2 and Period 3). When an Uber driver is online but has not yet accepted a trip (referred to as Period 1), Uber offers some insurance protection but is contingent\u00a0<\/em>on the driver\u2019s personal insurance policy and thus will only pay if the driver\u2019s personal insurance policy declines the claim.<\/p>\n

MetroMile\u2019s integration with Uber has allowed drivers to differentiate personal\/private driving (Period 1) versus commercial driving (Period 2 and Period 3), circumventing drivers from having to pay for auto insurance when Uber is responsible and translating into a considerable amount of savings for those Uber drivers who drive mainly for commercial reasons. MetroMile is positioned well to tap into insurance coverage for the ride-hailing market. MetroMile may be able to even integrate with Ride-hailing companies commercial insurance policies to push the cost of insurance onto the customer per trip.<\/p>\n

Seamless, Smart, Savvy<\/em><\/strong><\/p>\n

Through the Metronome or MetroMile Tag, MetroMile can share car data with their customers, helping them make more informed decisions. Furthermore, MetroMile will track car diagnostics and link you to a mechanic nearby. The app will also help you find where your car is parked or even assist you in avoiding tickets via street sweeping alerts.<\/p>\n

The Road Forward<\/em><\/strong><\/p>\n

Just as Uber is taking steps forward to adapt to the driverless-car phenomenon, MetroMile will need to adapt to an auto insurance market where the risk will gradually be shifted from the driver to the auto manufacturer or the software creator as cars move from semi-autonomous to fully-autonomous. Perhaps, the first place to begin is by tracking miles driven by man versus machine.<\/p>\n

Furthermore, MetroMile must continue to develop more personalized features with the data that it is collecting. These features will help increase customer retention regardless of the amount of insurance premium savings realized.<\/p>\n