Everything is moving towards personalization. Precision medicine, on-demand manufacturing, and the new credit score are good examples of how technology allows for a better fit into the product market in many industries and use cases. Today we will talk about how big data can enhance the car insurance experience for consumers. In past articles, we examined two insurtech companies listed on the stock exchange and working on it: Root and Lemonade. Today we will analyze Metromile (MILE).
About Metromile Stock
Metromile first encountered our radar in 2016 in a piece titled Metromile: Pay As You Go car insurance. Since then, the company has grown $ 463 million which included his income to go public with a sspecial ppurpose aacquisition ccompany (SPAC). When this SPAC merger took place earlier this year, we decided not to cover it because a superficial look at the shiny cover didn’t look promising. Recently, one of our premium subscribers suggested we take a look again and we’re glad we did. What we found in the regulatory filings was a company facing serious hurdles that could affect all insurtech companies that use big data to offer consumers a better car insurance offer.
Metromile value proposition
The Metromile value proposition begins when a customer requests a quote and then decides to adopt the service. An On-board ddiagnosis (OBD) the device connects to the OBD port of your car where it starts collecting data.
The result is a value proposition that can be broken down into two major areas: pay-per-mile insurance and data science for a better price. For the consumer, it translates into lower-cost car insurance thanks to a key metric.
35% of drivers drive more than half the miles and cause more than half of the losses.
With Metromile, you only pay for the miles you drive. This is a fairly easy-to-copy model for any insurance company, so the real added value is to avoid insuring the minority of drivers responsible for more than half of the losses. The problem is that many companies are already working on it.
No barriers to entry
Measuring the safety with which someone is driving is not a new idea. Just look at how much Zendrive was able to achieve with a simple app. Another successful smartphone app, Cambridge Mobile Telematics, can measure almost any aspect of driver safety, even knowing when an accident occurs or if you are the passenger or driver.
We recently visited an insurance agency in Podunk Washington to learn about the accessibility of this technology for your average car driver. As the saleswoman explained the policy, she pulled out an OBD device and suggested that we could save a lot of money on our car insurance if we allowed the insurance company to control our driving habits. There are no barriers to entry for any insurance company to do what Metromile does. Therefore, they are expanding into a “business” segment that offers its platform as a service to existing car insurance companies. Given the fragmented and highly competitive car insurance market, this could work. There is only one problem that is hidden in the corner.
The California problem
In most countries around the world, you will find opposing tribes that urinate. In England, they are from the north against those from the south, and in America, they are blue against red. People who complain about blue states are usually people from red states, but people from all political affiliations should sound the alarm when a state starts imposing rules that destroy shareholder value.
In the state of California, it started with hiring fees. Whether you sit down or stand up to take number one, it has no relevance in your ability to perform a job competently, but not in the State of California, which now imposes gender discrimination. Fortunately, they are now being sued for trying to demand racial discrimination as well. Destructive legislation like this makes it possible for companies to hire the best person for the job. No wonder, then, that the State of California interferes with the way Metromile manages its business:
Because of California’s Proposition 103, our largest market, we currently have a limited ability to use telematics data beyond miles to take out insurance, including data on how the car is driven.
In other words, the entire Metromile value proposition has just been thrown out the door. And it’s not just the state of California. Last year, the Naccional Association of Jonsurance Ccommissioners, or NAIC, announced the formation of a new special race and insurance committee that is considering “banning the use of credit scores when taking out car insurance,” among other things. Why there are more people who are not opposed to such outrageous proposals is beyond us, but if that happens, all stocks of insurtech that use massive data to add value to the consumer by reducing premiums will be in a world of pain . For Metromile in particular, the California problem affects 58% of its revenue.
Not being able to use someone’s driving habits or personal information as input to make subscription decisions leaves Metromile a stream. They simply become a company that counts the number of miles you drive and little more than that. We haven’t even started dissecting your financial files, but we already have enough information to make a decision.
Buy or not buy
There is absolutely no reason to invest in an insurtech company that is not allowed to use big data to select which drivers they want to insure. As investors of at least one large insurance company, we could be selfishly worried if insurtech companies fail as a result. If you put more money in the pockets of the big insurance companies and less in the consumer, our dividend checks will reflect that.
Those who choose to promote and promote regulatory policies that harm insurtech business models do not take into account the interests of the end customer, contrary to what they claim. Instead, safe drivers are expected to continue to subsidize the minority of drivers responsible for all losses. This is the sad reality of what is happening here, and we are not interested in speculating on what the regulatory outcome might be. The orientation that all this is currently taking is enough to indicate that insurtech companies are too risky for our tastes.
When evaluating the merits of any action, you need to think two steps ahead where the company might be, based on the limited information you currently have. We call this a “case study approach”. Metromile started with a great idea, but they seem to pivot in the face of uncertainty. His move to reinsure his policies and grow his business offering makes us believe that his business model is still key. In the face of the approaching regulatory uncertainty, we are preventing actions from moving forward.
We sold our stake in ETF Global X Fintech and used the proceeds to buy legaltech shares with a 70% market share. A $ 50 billion opportunity is expected and they have only achieved a penetration of approximately 3% – there is plenty of room to run. Become one Nanalyze Premium annual subscriber and we will show you our entire portfolio of more than 30 technology stocks.
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