In the Mobile Cloud Era, if you can identify major economic inefficiencies in established commercial practices and business models, you can then use the technology to come up with a new way of doing business.
Take auto insurance. That’s what Metromile is doing. Dan Preston, CEO of Metromile, told us that 65% of drivers in the U.S. are low mileage drivers, meaning that they average less than 10,000 miles per year.
Preston asserts that, “The low mileage drivers are, in effect, subsidizing those who drive more.” The company emphasizes that the primary insurance risk indicator is how many miles a person drives. Therefore, low mileage drivers should pay less.
Auto Insurance Based On Miles You Drive
Metromile offers insurance for these low-mileage drivers that is based primarily on the amount of mileage they drive. It claims that for drivers who do less than 10,000 miles per year, their plan can result in significant savings on the cost of traditional insurance, averaging 40-50% compared to typical auto policies.
With Metromile, drivers incur a fixed monthly charge, ranging between about $30-50, plus a per mile charge averaging typically about 3-5 cents. The specific rates for the individual are determined from examination of typical insurance underwriting factors, such as the driver’s record, type of car, miles driven, likely cost of repairs, and so on.
The policies written by Metromile are backed by National General Insurance, a nearly $3 billion (revenue) company. Preston explains that Metromile determines the rates for individual drivers. Can National General turn down any of the policies? Preston states that there are actually strict rules that are filed with the states that govern the guidelines for the policies, so that this is not an issue.
The company is currently operating in seven states: California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, and Washington.
The company also guarantees that mileage charged per day will not exceed 150 miles (250 miles in the state of Washington.) The company offers an array of coverages: property damage, bodily injury, collision, uninsured & underinsured motorist coverage, comprehensive, personal injury protection, medical payments coverage, rental reimbursement, and emergency roadside assistance. It offers deductibles of $250, $500 and $1000. It offers multi-vehicle discounts. The company also provides 24/7 claims service.
The service is sold primarily through online channels, although Preston states they do have in-house sales people as well. They get a lot of their business through word of mouth. But they also advertise.
How It Works Metromile Pulse + Smart App
The key to the service is a telematics device called the Metromile Pulse, which plugs into the OBD II (onboard diagnostic system – included in U.S. cars since the mid-1990s.) The Pulse enables the tracking of miles driven. It also allows Metromile to observe other aspects of the auto’s performance. The Pulse has GPS tracking capability, which can be disabled by the user.
The Pulse works in conjunction with the Metromile Drive Smart app, which is available for both Apple and Android phones. The app delivers information on the engine’s performance, as well as details of trips taken, and various alerts. It can, for example, alert the driver as to street cleaning operations in certain cities – currently Chicago, Los Angeles, San Diego and San Francisco. It can also locate the car for the driver and can advise on choice of routes to drive.
The Pulse is also equipped with an accelerometer that measures changes in speed, as well as a gyroscope that measures changes in the angle of the device.
Preston points out that the service was not practicable until about 2010 when the cost of the devices had dropped significantly. Obviously, it also relies on the cloud – in this case Amazon Web Services.
Connected Cars And The Future
What are the future growth horizons for Metromile and, specifically where does the concept of connected cars fit in? Preston has given this topic a great deal of thought and even posted an interesting article on LinkedIn on the subject. (“Driverless cars are becoming a reality. What does this actually mean for drivers?” 5/11/16.)
He points out that their Pulse is a first step of connecting the car – in other words, the Pulse can connect the vehicle and the individual’s smartphone app. He states that Metromile will focus on offering more services for the vehicle and driver, services that relate, for example, to the care of the car. He contrasts this approach with companies that are focused on infotainment.
He also foresees new issues in the area of insurance. He points out that “self-driving” vehicles will require the ability to switch quickly between autonomous mode and driver control in many instances, for some time to come. This will necessitate insurance offerings that are tailored to cover risks in each mode.
As for expansion of the current pay-by-the-mile insurance business, he states, “We will grow into states that have large cities.” This includes states in the northeast and the south. The company has stated its vision as: “Revolutionizing car ownership to fit your urban lifestyle is what Metromile is all about.”
Special Relationship With Uber
The company has received considerable attention because of its arrangement with Uber. Metromile offers insurance for Uber drivers (currently available in California, Illinois and Washington), that cover the personal driving use of their vehicles. www.metromile.com/uber
The period that the drivers are working for Uber includes the time from the point when they accept the fare until they complete the trip. The Uber drivers are covered during that period by commercial insurance provided by Uber. Metromile was inspired to offer the personal insurance by the fact that there did not appear to be existing policies on the market that were tailored to the needs of these part-time drivers, whose personal driving, in most cases, is probably not that extensive.
While Metromile is free to offer the insurance to other ride-sharing companies, e.g., Lyft, they have not done so, so far. Preston points out that there is considerable back-end integration needed to offer the service. While he does not reveal any specific data, he says that Metromile is pleased by the uptake to date by the Uber drivers.
We believe Metromile can be viewed from two perspectives. First, there is the insurance perspective. Mobile Cloud Era is devoted to tracking how the convergence of cloud computing and mobile is enabling massive innovation and transformation of huge sectors of the economy. This usually involves identifying massive inefficiencies in existing business models, often practiced by major entrenched legacy players. Metromile appears to have identified a very interesting economic inefficiency and potentially large market in the auto insurance business.
(Leading surveys have concluded that the average mileage driven by all U.S. drivers is only slightly above 10,000 per year: See: The Federal Highway Administration’s 2009 National Household Travel Survey (NHTS), table 23; also American Driving Survey from AAA and Foundation for Traffic Safety, table 2.2.)
The second perspective relates to the company’s broader vision, which is to improve the overall driving experience of a significant portion of drivers. The company emphasizes its objective to create “a more connected and informed car ownership experience.” When we asked Preston about valuable IP that the company may have developed, he pointed to areas such as their ability to target alerts to specific locations, as well as the increasing richness of diagnostic data. As with many of the companies that we track, Metromile appears to be in position to collect unique, proprietary data about its growing base of drivers.
Preston also emphasizes the potential “sharing” aspect of some of their services. For example, he notes that when they have identified a potential ticket-able area to avoid parking in, they have found drivers sharing that information with friends over social media.
The company has grown to about 200 employees and has raised about $14 million in venture capital. Metromile appears to be defining a role in the vast automotive information sphere, using its innovative approach to driver insurance as a wedge product.
Visit their website: www.metromile.com