Changing consumer habits and increased digitalization are impacting the relationship between people and their automobiles, with downstream effects on the insurance industry. The traditional ownership models of buying and leasing are being supplanted by car-sharing, on-demand rides for hire, and an emerging phenomenon, car subscriptions.
Subscriptions are similar to leases in that customers get a vehicle for only a certain amount of time before being expected to return it. However, the durations and mileage tend to be shorter. In return, the subscription cost includes more of the cost of a car -- including insurance.
A car subscription technology provider, Clutch, approached Allstate’s Arity usage-based insurance and data-analytics subsidiary, Arity, with an issue: Insurance costs were higher for car subscriptions than they felt they should be, because insurers were looking at the product as a commercial fleet, not a personal-use item.
“[Insurers] told us, ‘Well, we don’t know exactly what this is, but it can’t be riskier than a fleet of plumbing trucks,’” says Taylor Sandusky, head of business development for Clutch, which launched in 2014. The premium, however, raised the cost of the subscription too high to be worth it for most consumers.
So Arity and Clutch worked together to analyze nearly 1,500 drivers in Clutch’s program using Arity’s PreQual predictive model, comparing them with Clutch claims data. The companies discovered that -- somewhat instinctively -- car subscription customers were closer in profile to typical personal-lines auto risks, rather than commercial drivers. But armed with the data, Clutch will now be able to provide more competitive insurance quotes to its customers, which include luxury-car brands like Porsche, BMW and Mercedes, as well as middle-market dealer groups. Insurance costs have dropped by about a fifth in some cases.
“We’re looking to give insurers the data they need to create the right policy for this risk profile,” says Rachel Allen, group project manager for shared mobility at Arity. “It could be a new category that isn’t personal or commercial, but is a brand-new mobility category that’s a lot more dynamic, priced on the individual consumer and risk they incur.”
That could include more closely tying telematics technology to subscription agreements down the road, Allen and Sandusky agree, especially since car-subscription customers tend to drive fewer miles than average.
“We’re hoping to shape the industry so insurers can cover any use case per mile,” Allen says.
