Auto Insurance Premiums’ Big Digital-First Shift

The coronavirus has forced a reckoning with daily financial life, with belt-tightening and budgeting.

And as tens of millions of Americans stay at home, work from home, shop from home (and have things delivered), and as the kids are learning at home – cars and vans and trucks sit idle in driveways and on side streets.

It stands to reason that the risk of accidents declines when the vehicles (and the drivers piloting them) are off the roads.

To that end, the stage may be set for a data-driven model for vehicle insurance, where premiums are tied to usage, which reflects actual real-time and real-world risk.

In an interview with PYMNTS, Metromile CEO Dan Preston noted that any number of industries, including insurance, are moving toward a digital-first mindset.

First and foremost, though, individuals and families are examining whether their insurance policies might be in need of adjustments.

“I think the biggest impact everyone’s aware of is that miles driven are down by about 60 percent,” Preston said of the pandemic. “People are reassessing their options as they find that they’re obviously not using the insurance they bought. ”

Against that backdrop, carriers such as Allstate, Liberty Mutual and GEICO have been giving billions of dollars back to policyholders. GEICO, for example, has been offering its holders a 15 percent credit. Liberty Mutual has said that its own customers will get 15 percent refunds for two months of their premiums.

Preston noted that demand for “per-mile” insurance has gone up, where previously they might have waited for their traditional insurers to investigate risk and return back with (supposedly accurate) premiums.

As the traditional carriers offer payment relief, he said, in March, Metromile gave 30 percent of premiums back to customers across the eight states in which it operates without having to offer refunds or do anything differently.

As Preston told PYMNTS, the math is fairly simple: “People just drove less, so they ended up saving.”

Looking Ahead

The shift toward working from home may become fairly entrenched, said Preston, which in turn will cut down on commuting time, and shift the risk lower (which should be reflected in auto insurance premiums). That shift will most certainly last at least until there is a vaccine available to combat the coronavirus.

“I do expect there’s going to be a lot of companies shifting toward a more long-term remote culture,” he said.

Even shopping may change a bit, where people stay a bit closer to home or drive less frequently, opting to consolidate their trips.

The current recessionary environment, said Preston, may give rise to new and flexible financial products and services, mirroring the tech innovation that marked the decade since the last Great Recession struck 12 years ago.

The opportunity exists, then, to leverage technology to address drivers’ insurance needs on a per-customer basis, as firms like Metromile factor a number of variables into premiums constructed on top of a base rate meant to cover collision. Those variables – tied to the safety of the road being driven, traffic patterns and individual driving behavior – are gleaned from sensors in the car.

Preston noted that the company’s app, and the data collected by the firm, can represent a starting point for “building a better claims experience.”

He pointed to AVA, Metromile’s claims assistant that is underpinned by artificial intelligence (AI), which can collect details to help automate claims filings, file damage photos and use sensor data to “reconstruct” the accident scene.

That contrasts sharply from the traditional claims process, which can involve several calls to an insurance company – “oftentimes they’ll ask you the same question twice to make sure that you’re telling the truth,” said Preston, adding that the whole process “creates an adversarial relationship with the customer.”

As he told PYMNTS: “The obvious approach is to start with user behavior to give a better [insurance] price, but data can be used in a deeper, more holistic way, for the end-to-end customer experience.”

Preston noted that features included in the app can alert users to impending street-sweeping activity (enabling them to avoid tickets) and even help with budgeting trips.

It might be hard to envision what life looks like on the other side of the pandemic – but as Preston told PYMNTS, a digital-first shift, data-driven by the mile, “may certainly be what insurance looks like for the long term.”