The auto insurance industry is one that’s almost as old as the automobile industry itself. To be specific, it dates back to 1897, when Gilbert J. Loomis of Dayton, Ohio purchased the first ever auto insurance policy from the Travelers Insurance Company. Since then, as automobile ownership has exploded, and various jurisdictions have made auto insurance mandatory for drivers, not all that much has changed in the industry.
The reason that the auto insurance industry has remained unchanged for so long is that the underlying product – cars – haven’t changed much either. Today, however, as autonomous vehicles continue to pass new development milestones and are coming closer and closer to widespread adoption, something interesting is happening in the auto insurance industry – it’s beginning to show signs of disruption as a new generation of insuretech startups brings new methodologies to the forefront.
Changing the Equation
At the core of the changes happening in the auto insurance industry is the fact that autonomous vehicles, once they become the norm, will change the fundamental measures that today’s insurers use to determine rates and coverage offerings. For example, premiums will no longer be based on the skill of the driver, as they will no longer be operating the vehicles. Instead, insurers will likely have to turn to statistical and telemetry data to determine the safety and reliability of individual vehicle models, and also take into account things like road conditions, pedestrian density, and traffic patterns in the owner’s home area. On top of that, there is still some debate as to who will even be liable in accidents involving autonomous vehicles.
Startups Shake Up the Industry
The need for insurers to move towards a data-centric approach has lured tech entrepreneurs into the space, all angling to bring a fresh approach into what had previously been a staid marketplace. In the near term, startups like Root and Metromile are pursuing small slices of the existing auto insurance market while building out their technology to enable a pivot when autonomous vehicles hit the market en masse. Root, for example, makes use of a driver monitoring app that leverages the spatial tracking hardware in the policyholder’s smartphone to collect real-time data about driving habits. Metromile, on the other hand, is aimed at low-mileage city drivers. They provide policyholders with a device that connects to their vehicle’s OBD-II data port, which then collects vehicle operating data, but also allows the driver to purchase low cost car insurance on a per-mile-driven basis.
Taking the Next Step
These data-driven auto insurance startups already offer drivers insurance policies in multiple states around the US and are expanding every day. Their innovative platforms are allowing them to grow while working on their real purpose – collecting as much driver data as possible. That’s going to give these insuretech startups a leg-up when the industry faces the inevitable shift that autonomous vehicles will entail. They’re betting that incumbent insurance businesses will be too slow and unwieldy to effectively modernize in the coming years, and it looks like investors agree with them. In just the past few months, Root has raised $100 million in Series D funding, while Metromile landed a $90 million Series E round, as well.
Embracing the Future
Traditional insurers aren’t going to go quietly into the night, of course. As insuretech startups gain more traction, today’s industry giants are building out their own technology to keep up. Allstate, for example, is pouring resources into a subsidiary, called Arity, whose purpose is to collect driver data and build a driver scoring system to replace existing risk models. So far, the initiative is losing money to the tune of around $15 million per year, but Allstate seems willing to absorb the losses to gain the treasure trove of data that Arity is already collecting.
It’s too soon to tell if the approach will pay off in the long term, but taken with the rise of the data-driven insuretech startups, it seems clear that for the first time in over a century, the auto insurance industry is going to change. Where it ends up will be determined by who wins the race to build a data analysis platform that can serve today’s drivers and create a solid base for the autonomous vehicle future – and that race is most certainly on.
