The Mainstreaming of Usage-based Insurance

Telematics is very much in the news this week. In addition to the release of “Telematics/Usage-Based Insurance: A Catalyst for Change," a research paper from Strategy Meets Action, coverage in The New York Times and, my favorite: “How a Creepy Car Insurance Idea Could Save Thousands of Lives (and the Planet),” in The Atlantic; we also have the launch of MetroMile, a new UBI insurer in Oregon.

The premise behind MetroMile is that the company charges policyholders a monthly per-mile rate, offering discounted premiums to lower-mileage drivers. Drivers are then further incented to drive less in an effort to keep their rates low, which we, as a society, are already doing as a function of several factors, including high gas prices, high unemployment rates and a migration to our nation’s cities.

"Millions of people are making conscious decisions to bike, walk and use public transit more often, benefiting the environment and livability of our cities,” said Steve Pretre, CEO and co-founder of MetroMile. “Traditional car insurance pricing takes the money those people should be saving based on their reduced driving and uses it to subsidize people that drive more. That is unfair and we are setting out to change it."

One of the outcomes of driving less is less risk exposure and lower mortality, which was explored in significant depth in “Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity,” from The Hamilton Project/ The Brookings Institution, the nonprofit public policy organization based in Washington, DC. Long story short: there is a near-linear relationship between miles driven and the likelihood of claims.

But another outcome is lower emissions resulting from those fewer miles driven. And, interestingly enough, one of the MetroMile founders is David Friedberg, CEO of The Climate Corporation, which “aims to help all the world's people and businesses adapt to climate change,” the company says, adding “The Climate Corporation is helping farmers plan, manage and protect their farming operations using data services and insurance products available through climate.com.”

"We drive three trillion miles per year in the U.S. Accessing the data from every car's on-board computer system would yield approximately 300 Petabytes of data per year,” Friedberg said. “That data can power valuable new services, like our per-mile car insurance product."

MetroMile does not use GPS or driving behavior in the premium equation, the company said, though it does collect and transmit driving data in real time and reports miles driven, which it uses to calculate the premium. And the company, while offering insurance products, describes itself as a technology company aiming to “unlock and make use of all the world's driving data,” and provides drivers with a proprietary device, called a Metronome, that plugs into their auto’s DBII port.

So my open questions, and I do have calls in to MetroMile, is how are they going to use the data that comes off those devices? Will it be used by The Climate Corporation, and if so, how? I’m also curious to know if the data will be available for sale, and to whom. I would have to assume so; if MetroMile is using only mileage for rate calculations, why else would MetroMile go to the trouble and expense to install a device? And if other data is collected, why not incorporate it into price?

I’m eager to hear back from MetroMile, and I’ll keep you all posted.

Chris McMahon is a senior editor for Insurance Networking News.

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