"I have a mind like a steel... uh... thingy." Patrick Logan's weblog.

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Sunday, December 30, 2007

Milemeter: Buy Your Insurance By the Mile

Brady Forrest writes about Milemeter, a new insurance startup. First, the words "insurance" and "startup" seem to form an oxymoron. But I don't see them listed, so I read on.

An interesting aspect of insurance to me is that the "product" is completely information-based (most of my career has been in software for the design and manufacture of tangible, electronic products; I currently work in the insurance industry). Unlike some other information-based products in financial services, though, insurance seems to be more heavily regulated, and the period between events is long (days, weeks, months). The most successful sale of a product (i.e. no claims, no changes to the coverage) has one significant event a year, (re-)issue, and some minor billing/payment events.

Compare this to financial portfolios, which can be wide ranging and nearly unregulated (cf. the current sub-prime crisis and obscure bundling as supposedly secure instruments), and the period between trading events can be measured in sub-seconds and/or distributed around worldwide markets.

On the one hand there does not seem to be a lot of pressure to change the way information technology works in insurance. On the other hand all these aspects seem to open up new opportunities for change.

Brady observes...

As you may have guessed, they are built on AWS (you can see a video discussing their usage on their blog). They are also using Ruby on Rails with Postgres...

This is what I want to see, large, black-box industries being taken down and made consumer-friendly. (Can the health system please be next?) I don't really know what I pay for with my current insurance, but with Milemeter I'll have a much better understanding.

The internet will sooner or later affect all these industries. (Amazingly much of the current B2B transactions in insurance takes place over proprietary networks, that is, when they are automated at all.)

The established insurance IT has to get its cost of change significantly lower. The best way to do this is to copy the way software is developed for the internet. As Milemeter demonstrates, this will come from the "outside" whether or not the "inside" is ready for it.

I had a chance to visit with Steve Loughran and some of his local friends, when Steve was in Oregon last week. We had a good talk about all these changes, where they are trending, and which kinds of organizations are doing what along those trend lines.

There is no doubt the cost of change is the limiting factor in established organizations from following those trends as aggressively as possible. The opportunities are there and the pressure to change will increase.

Chris Gay of Milemeter notes in the video, linked above, "Amazon Web Services is a pay-as-you-go infrastructure and Milemeter is a pay-as-you-go insurance provider". The ability to use nimble infrastructure(s) will aid the product itself to remain nimble.

2 comments:

chris.gay said...

Patrick,

You are spot-on about this being a financial information product. Our competitors who have attempted pay-as-you-drive solutions aimed for 100% situational awareness via tracking devices. MileMeter assumed information is never perfect and that 100% SA is unattainable. So we built a business around the assumptions that information is always imperfect and lacking, consumers want change and control, and the odometer is adequate for our needs. The odometer is auditable, verifiable, and legally-protected -- so we can get what we need without the use of any "Big Brother" tracking devices. Building the rest of the product was more akin to creating a new financial derivative instrument than building an electronic device.

You are also correct in stating that there is little pressure for change in the insurance industry. This is due to several factors, in my opinion, of which I'll mention a few. First, the industry is very profitable as-is for the healthy companies. There is no financial desperation (due to a shrinking market or heavy competition) to innovate new products, since "all boats are lifted by a rising tide." Second, regulatory hurdles and requirements limit competition to some degree. While state regulators exist to protect the public, the combined actions across 50 states often have unintended (and in my opinion, anti-competitive) effects. Third, the industry and its employees are risk-averse by nature, so true startups are a rarity. There are no internal pressures to change, and very little external pressure (barring a new challenge like the rise of direct-insurers in the 90s and MileMeter now).

Distance-based insurance also has dramatic social, transportation and environmental policy benefits. Through the use of a financial instrument like distance-based insurance we have the potential to lessen air pollution, sex discrimination, uninsured motorist problems, road congestion, and even lower the number of traffic injuries.

We're excited about MileMeter because it is the chance to both help people save household money and help our communities with problems we face, all while building a profitable business. It is a non-intrusive application of market principles to both market and policy problems.

Thank you for the coverage.

Sincerely,
Chris (from the video)

Hayden Wills said...

Good post Patrick and thanks for the information. Some of the insurance schemes introduced by insurance is really very helpful and can also save money. The schemes such as pay as you drive insurance where you have to pay for the miles covered by your car and this is really a great idea to save money and for those who drive very frequently. For such schemes you need to install tracking box or in-car tracker which records the details of the miles covered by the car and sends it to your insurance so that you can pay for the required mile covered or traveled by your car. This also helps to find your lost car, records the driving status of driver especially for teens or young drivers where there driving skills can be checked and many more things can be done using a tracking system. http://carinsurancetemporary.co.uk/

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Portland, Oregon, United States
I'm usually writing from my favorite location on the planet, the pacific northwest of the u.s. I write for myself only and unless otherwise specified my posts here should not be taken as representing an official position of my employer. Contact me at my gee mail account, username patrickdlogan.