Total Pageviews

Wednesday, December 5, 2012

Car Insurance By the Mile

We live in an age of information everywhere, and all that data is changing some of the most staid industries imaginable.

Yes, you're reading about car insurance.

A company called MetroMile has started selling insurance to drivers in Oregon based on how many miles they drive. The business uses an in-car sensor that logs the miles, and sends a monthly bill, something like a utility meter. The company says that its ideal consumer, someone who drives 5,000 to 8,000 miles a year, can save 25 percent to 30 percent a year, compared with conventional auto insurance.

Other insurance companies already calculate rates in part on whether a vehicle carries a transponder, allowing it to be located or tracked. MetroMile seems to be taking a novel approach, however, in custom-building insurance based on individual behavior.

That is not all that MetroMile is after, however. The sensor, which is connected to cellphone networks, is also tied to a car's on-board compu ter and can collect diagnostics data, emissions data, and other information about the condition and performance of an auto. Over time, the company plans to offer subscribers information about ways to drive more safely, get more miles to a gallon of gasoline, or judge better what is being fixed in their cars.

“By having people pay per mile, it also creates an incentive to drive less,” said Steve Pretre, the chief executive and cofounder of MetroMile, which is headquartered in Redwood City, Calif. “We can help people make lifestyle decisions they want to make anyway.”

The company is marketing itself first in Portland partly because Oregon's regulations are more open to new products, and partly because Portland is at the forefront of a general movement toward more dense urban living, more bicycling, and more walking. If the company can secure 10,000 clients, Mr. Pretre said, the insurance part of MetroMile's business should become “relatively stable and pr edictable.”

The company will charge a base fee of $30 to $60 a month per vehicle, which covers things like auto theft and insurance when a customer is driving another car. The mileage charge is expected to be 3 cents to 6 cents a mile, depending on such things as age and driving record.

Compared with traditional insurance, “at about 10,000 miles or less, a transition happens” that makes MetroMile's pricing more attractive, Mr. Pretre said. That is because people who drive a great deal are riskier bets, simply because they are more often on the road, potentially at hazard. This gives MetroMile a potentially large market, since a relatively few drivers, perhaps 30 percent, are responsible for half of the nation's driven miles.

The company's other cofounder, David Friedberg, is an early Google executive who then started Climate Corp., a crop insurance company that uses large amounts of data about rain and heat patterns, plus soil quality and root depths of various plants to sell custom farm insurance.

Mr. Friedberg said the data from the cars could also be used to go into the warranty business, which because of poor information about specific vehicles, “are priced asymmetrically.” He says, “We'll have a better idea of what is going on.”

The company, which was formed about 18 months ago with $4 million in initial financing, has 15 employees. Mr. Pretre said MetroMile, which is building up its own team of data scientists, does not plan to share driver data with third parties.