Miles mean smiles for auto insurer

With so many insurers concentrating on a future strategy of UBI products, there’s a disrupter that is questioning the validity of the behavioural approach.

US newcomer, Metromile takes a simple approach to automotive insurance risk by basing premiums purely on mileage covered by the consumer. Naturally, in view of this, the vast bulk of its customers are city dwellers in the seven states the San Francisco headquartered company currently covers.

So how can this young insurer be making decent profit margins from low mileage, low risk policies? TU-Automotive went to find out by catching up with Metromile’s CEO, Dan Preston at Connected Car Insurance Europe 2017 in London.

Preston told us that the business model is not so different from a traditional insurer’s products. He explained: “We have priced our product to have the same loss ratio, effectively, as a traditional insurance carrier would expect. So, while the premium per customer basis is going to be lower than the same customer in somebody else’s book, we would be expecting the same level of profit.

“The biggest thing to contend with is that the premium levels will come down as we price the risk more effectively.

“Our growth over time will be by expanding the market into other states in the US. Also, while we do not use user behaviour in the product, there are some targeted ways to introduce variables that are both intuitive and also predictive of risk. The intuition part of this is important – one of the things we are particularly excited about is ‘type of road’.”

Here Preston raised the prospect of branching out away from the urban environment into the suburbs and even rural communities. For these users, mileage clocked up on ‘safe’ interstate highways could be rated much lower of a risk than those in the congested streets of a bustling city.

He said: “Today, our customers are largely city folk driving fewer miles but there is a whole suburban and even rural market that could be opened up by having a lower priced highway rate. I think we can improve the product in this way and it remains transparent to our customers and isn’t a behavioural approach, which I think can turn off a lot of customers.

“So, I think that’s actually how our product can expand beyond the current market. It’s all about the threshold of miles so right now the threshold is about 12,000 per year. For anyone who’s a highway commuter that threshold goes up to 15-16,000 miles. In this way the policies become more attractive for a suburban or rural driver.”

Much of the success of Metromile’s business model comes from its claims process that promises to speed up the experience for the consumer while saving the company money. On its website, the process is explained as providing the technology to allow the consumer to start the claim online and file the entire claim from a smart phone. It’s Pulse OBD II port device, which records mileage, monitors the car’s health, picks best journey routes and locates the vehicle, can also supply incident data where some claim types can even be resolved within hours.

Preston said: “The final part of this is an improvement of the product itself. This idea with the claims process to be able to fully expedite a claim and have a fully personalised experience for customers is probably the most important concept for us right now because we think this will deliver enormous value to our customers.

“Also, our process [of using data] cuts our assessment costs by half reducing the number of claims adjusters down from 10 to five.”


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