From making repairs to keeping the gas tank filled, owning a car is a pricey enterprise for many people. But of all the expenses required for auto ownership, perhaps none is more frustrating than paying for insurance. Not only is the service expensive, it’s also rarely needed until something goes seriously wrong with your car. Matters are even worse for people like Greg Muender, a San Diego tech entrepreneur who works from home. Even though he clocks in as few as fifty miles a month on his vehicle, Muender still pays the same hefty insurance rates as everybody else.
That is until he found out about Metromile. At this new insurance startup, the price of premiums is based on how much the policyholder drives. If they’re like Muender and hardly get behind the wheel, they pay much less. If they drive often, the cost is higher since there’s a greater chance that frequent drivers will file a claim. In order to gauge the driving habits of its policyholders, Metromile outfits cars with a GPS-based device called the Metronome. This mileage-tracking gadget plugs into a car’s data port and allows the company to customize its rates easily.
So far Metromile has gathered $14 million in venture capital and is currently operational in four states. Even with so much early investor interest, the company has a long way to go if it’s going to catch up to its big name competitors. Geico alone spends nearly $3 million per day on advertising; therefore, Metromile is reluctant to get too involved in the marketing game. Instead, the startup hopes to gather interest about its money-saving business plan primarily through word-of-mouth. In fact, the company’s Metronome device does more than just track customers’ mileage. The gadget also warns users if they’re parked in a zone where they could get a ticket. So far Metromile has sent out more than 18,000 warnings to customers in San Francisco and Chicago. What’s more, the company can use the Metronome to monitor a vehicle’s fuel use and to detect maintenance problems. With these additional services, Metromile hopes it can pull valued-minded consumers away from the traditional insurance giants.
Questions:
- What key challenge does Metromile face in gaining market share in its industry?
- Is pay-as-you-drive a fair method of charging for auto insurance?
Source: Noah Buhayar, “Metromile Pitches Pay-As-You-Drive Auto Insurance,” Bloomberg BusinessWeek, August 21, 2014. Photo by: Michael Andersen.