Pay-per-Mile Car Insurance: What You Need to Know

The car insurance world is changing. The introduction of advanced analytics makes car insurance less of a guessing game, as insurance providers can track individual driving habits and reward customers accordingly. With this new technology came a consumer demand for more variety in car insurance options, especially from younger generations, who don’t want to pay high premiums just because of their young age.

IoT has changed the car insurance game and along with it came the introduction of pay-per-mile. The concept is as simple as it sounds; you pay based on how many miles you drive. A few companies only charge customers per mile, but most pay-per-mile providers still factor in risk to determine pricing. Either way, drivers in urban areas are flocking to this option since many use their vehicles sparingly and don’t want to pay for expensive insurance plans.

The benefits of pay-per-mile insurance

Pay-per-mile insurance provider, MetroMile, for example, targets not only urban drivers, but also millennials who drive but seek alternative forms of transportation, whether for ease of use or environmental reasons. Pay-per-mile works very well for this demographic and for households that have more than one car but really only use one, individuals who work at home or carpool, and for city-dwellers who find it faster to use public transportation.

Pay-per-mile companies also claim other benefits such as fewer emissions, less traffic, and reduced demand for parking. Perhaps insurance-by-the-mile is helping the environment as well as it offers an alternative form of insurance for the occasional driver.

The drawbacks of pay-per-mile insurance

Unfortunately, for now, this new type of insurance is not available everywhere; MetroMile, for example, is only available in seven states, though this may change soon. Experts caution drivers that pay-per-mile can actually be more expensive if you underestimate your driving patterns. Those who drive over the designated limits might end up paying more than a traditional monthly insurance plan.

Also, reckless drivers should not enter into this type of insurance, as safe drivers are rewarded based on non-accidents and other factors measured using IoT devices. There is some uncertainty in this market, as it is so new and experts are unclear as to how pay-per-mile insurance companies factor in driving records and analytics collected from in-car devices. Some of the driving data is open to interpretation, which means drivers have to rely on the company to accurately read the data and translate it into fair pricing.

The future of pay-per-mile insurance

While providers work out the kinks and expand across the nation, the demand from customers is clear. According to a report by BI Intelligence, by 2020, over 50 million US drivers will have tried usage-based insurance. The report notes that auto insurance is leading the way in IoT adoption, showing this trend will not slow down anytime soon. IHS Automotive says the number of usage-based insurance users will grow to 142 million subscribers globally by 2023.

Pay-per-mile has expanded to other parts of the world as well. For example, Jooycar launched the first Latin American pay-per-mile program last year. The company’s success in terms of engagement and customer acquisition shows the demand for this service in the region.

Customers will enjoy a more personalized experience, as their insurance providers will have access to their driving habits and therefore be able to take a more one-on-one approach in customer management. In addition, providers will likely begin to offer more customized pricing as more driving patterns are revealed and predicted using data.

The challenge left for the pay-per-mile provider will be to translate the data into fair pricing that gives customer satisfaction and profitability. These insurance providers now boast high savings for customers, but are those saving sustainable in the market? And when more competition launches, especially from traditional insurance providers such as Allstate’s Esurance, how can these companies compete? There is a lot of room for expansion in the pay-per-mile market, as more IoT platforms come on the scene and connected cars become the norm. With the high consumer demand, pay-per-mile insurance providers seem to have a set place to grow and test initiatives. And as the technology evolves, it will be interesting to see these offerings change and adapt alongside it.