Car Insurance Companies Still Use Race and Gender to Measure Risk. This Startup Says It's Found a Better Way.
How would you drive if your car insurance rate adjuster was in your passenger's seat? That question is the premise behind Just Auto Insurance, a Brentwood-based startup that offers data driven, pre-paid and pay-per-mile car insurance.
Just isn't the first auto insurance company to adjust rates based on driving (anyone with a television is probably sick to death of listening to Progressive hawk their "safe driver discount"), but they are the first to combine the idea with a pay-per-mile formula.
It's an interesting idea, and one that appears to be catching on: The company announced late last month a new raise of $8 million co-led by Crosscut Ventures, ManchesterStory and Western Technology Investments. (That's on top of the $15 million they've raised to date.)
The new funds will help them expand into new areas and develop features aimed at improving driver safety and reducing the likelihood of accidents.
"If you don't drive that much, if flexibility matters to you, or if you are a safe driver, we will save you an enormous amount of money," said Just founder and CEO Robert Smithson.
Beyond Race - and Gender-Based Proxies
Smithson says the company, which is testing its app only in the state of Arizona for now, has more than 5,000 drivers signed up for insurance. Some on their minimum liability plan are paying $10 or less every month for car insurance — as little as 3 cents per mile.
For full coverage, Smithson says, the cheapest rates are around $20 per month. For comparison, the average cost of minimum liability coverage for men in Phoenix, Arizona comes out to $55 per month. For women it's $59 per month.
That men and women pay different rates for car insurance is exactly the kind of esoteric actuarial voodoo that Just is trying to offset. Car insurance underwriting has historically relied on things like zip code, income, education, race and gender as proxies for risk.
But according to Smithson, this is an outdated and unnecessarily convoluted — not to mention prejudiced — way of thinking, thanks to the smartphones in our pockets, which are capable of monitoring our driving.
"The reality is we now know how people actually drive," he said. "There's no reason to use proxies for risk anymore, we can use actual risk. We can assess, do you like to do 65 in a 35 zone? Do you like to drive home from bars at 3am all over the road? Do you stop at stop signs?"
Unfortunately, not everyone is a good driver, and some people just aren't cut out for Just's model.
"The very worst driver who we've ever seen managed to see her price rise to 71 cents per mile," said Smithson. "How on Earth do you get 71 cents per mile? The answer is by driving back from bars 3 nights a week and not paying attention to speed limits or stop signs. She was only with us for about 28 days before she decided another insurance company would be cheaper. And it is! She should not be with us. She should be with someone that doesn't check her driving."
In addition to how well you drive, the Just app monitors how much you drive, where you drive and what time you're driving to calculate your insurance cost. Rates are adjusted at the end of every month — a practice that differentiates Just from many of its competitors, such as Root and Metromile.
This continuous rate adjustment, Smithson says, is what gives Just a leg up on other companies that only change the payment structure once per year. Not only do safe drivers see immediate benefits, people who aren't a good fit for Just's model (because they're unsafe or they drive a lot) quickly leave the service.
"If you're a bad driver, it's cheaper to do it with someone else," said Smithson. This translates to a more efficient underwriting model: Techcrunch reported last week that Just's direct loss ratio was 65.8% year to date while Root's was 82% for 2020.
A screenshot of Just Auto's "ScoreSafe" dashboard
Investing in Driving Data
With all this data pouring in on driver behavior, Just is planning to use much of the new funding to expand its data science department.
"We see accidents happen," said Smithson. "We want to look at our data and rewind. Why did that happen? Are any other people in our customer base doing whatever caused that accident? And if so, can we tell them not to?"
The idea is ultimately to create a system that recommends new behaviors to drivers to improve their driving and save them money. One push notification could prompt users to leave 10 minutes later for work to reduce the amount of traffic during their commute. Another could let drivers know a certain intersection is particularly dangerous and suggest an alternative route.
The app might propose calling an Uber rather than risk a late-night drive home from the bars. Smithson says they're not planning to create a navigation app to guide users along the safest and cheapest route, but they're not completely ruling it out either.
As hyperbolic as that may sound, there's good reason to believe their strategy of incentivizing safe driving with discounted insurance might actually make roads safer, too.
"Considerable research indicates that motorists respond to financial incentives," said Todd Litman, founder and executive director of the Victoria Transport Policy Institute, a transportation-focused think tank. "Using standard price elasticity values, we predict that distance-based vehicle insurance is likely to reduce affected motorists' annual mileage by about 5-15%."
Additionally, Litman says, because these pricing schemes especially incentivize the highest risk drivers to drive less, a reduction of 5-15% should equate to even more than 5-15% fewer crashes. Just's own data paints a similar picture: The company reports that their customers have accidents that cause injuries at a rate of 2.2 per 100 policy years, which is 15% lower than the industry average.
As the company expands outside of Arizona, it will have to overcome the patchwork regulatory landscape that determines insurance laws in each state. In California, for instance, Prop 103 limits the factors you can use to set auto insurance rates, making apps like Just illegal — a real stroke of irony for a company headquartered in L.A.
Smithson says there are maybe five other states that have similar laws that will prevent Just from ever being welcomed by regulators.
"It comes from the best intentions. It's not like the California regulators are trying to be a pain. It's just that it's got so complicated that our product would be illegal in California," he said. "I want to bang on every regulator in the United States and say 'We can use insurance to save lives'."
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Insurtech veteran Nelson Lee is behind a new startup digitizing life insurance — a process he promises can happen in as little as seven seconds.
For a monthly fee — premium subscriptions start at $99 — insurance agents and brokers can access iLife's database of over 500,000 policies along with the software to help them match customers with the right plans.
"You would never have to hire a developer, you wouldn't need to know anything related to technology, you'll never need to buy Salesforce or use Wordpress," said Lee, founder and CEO of the SaaS startup.
Some customers, he said, call the platform "the Shopify of life insurance."
The Playa Vista-based company closed a $4 million seed round led by Foundation Capital to grow its team and launch new product features aimed at remaking the notoriously slow process.
According to the company, life insurance shoppers are typically left waiting between five and 14 business days for a quote. Meanwhile, agents can easily burn through thousands of dollars before getting their agencies off the ground.
Around 90% of Lee's users already sell other financial products and are looking to expand into life insurance.
"As a broker selling life insurance the traditional way for years, I knew the pain points in the process," said Jessica Leopore, founder of online life insurance company Surevested, which runs on iLife's software. "Quotes, applications and underwriting turnaround times were incredibly time-consuming and frustrating for both the agent and client alike."
iLife's platform, she said in a statement, streamlines the sales process "from quote to bind, freeing up our time to be more productive."
Four life insurance carriers and over 100 agencies and brokers currently use the platform in beta. It will launch to the public in June.
The insurtech field is wide open for startups like Counterpart and larger online insurance rival Next Insurance, which have made forays into the personal insurance market in recent years. To date, the Silicon Valley-based Next Insurance, which also provides small business liability insurance, has raised a total of $631 million.
"The insurance industry has an opportunity and obligation to use all available information to help small businesses navigate today's newfound risks," said Counterpart CEO Tanner Hackett in making the announcement.
Chicago-based Valor Equity was an early backer of Elon Musk's Tesla and SpaceX companies; Addepar, a wealth management platform that specializes in data aggregation, analytics and performance reporting; and, more recently, the "instant needs" delivery business run by GoPuff, which raised $1.15 billion on Tuesday in a new round of funding.
Counterpart is targeting management liability insurance to mostly small businesses and brokers. The insurance covers exposures faced by directors, officers, managers, and business entities that arise from missteps caused by corporate governance, finance, benefits and management activities.
Large publicly traded firms generally purchase stand-alone policies as part of what Counterpart estimates is a $10 billion market – including small businesses and brokers.
Hackett could not be reached for comment on spending plans following the announcement.
Counterpart's product squeezes efficiencies out of the buying process. Its product manages liability insurance on a software platform that leverages technology at every touchpoint, including application submission, coverage selection, claims management and loss prevention.
Separately, Counterpart announced Tuesday a partnership with Glen Allen, Va.-based Markel Corp. to offer its management liability insurance products.
Markel is a diversified holding company for insurance and investment operations.