Technological Disruption

in Auto Insurance
Technology: The New Trend in Auto
Insurance
 Just like in many other businesses, technology is making inroads to the auto
insurance industry.
 Auto insurance has been a traditional industry with little change over the
years.
 Time is ripe for technology to disrupt the industry.
 A few companies in the industry have started using technology to make
the auto insurance market more efficient.
 Notable players are Root Insurance and Progressive.
 Technology is used to determine an insurance premium for drivers, which is
fairer and cheaper than traditional insurers.
How Traditional Auto Insurance Works

 Insurance rate mainly depends

on DMV history and profile of
driver.
 Does not take into account
individual driver’s day-to-day
driving habits.
 45% of the total number of
accidents caused by only 30% of
drivers.
Pricing Model of Root Insurance vs
Traditional
 Most important factor is
individual driving habit.
 Does not insure the high-
risk 30% of drivers.
 Reduced pay out costs
resulting from lesser
accidents.
 End result is significantly
less premium for its
customers (up to 52%
savings).
How it Works

 Prospective customers must sign up with Root and need to download the
Root app in their smartphone.
 During “test drive” phase their driving habits are monitored by the app.
 “Test drive” usually lasts for 3-4 weeks.
 After “test drive” period, the driver gets a score based on their driving
habits.
 Based on this score, Root will accept or deny the driver.
 If accepted, the driver can purchase a policy from Root.
The Technology Under the Hood

 Root app collects high-frequency

sensor data from instruments that
already exist in smartphone. For
example…
 GPS: In addition to latitude and
longitude, GPS collects data like
speed, altitude, and the
direction.
 Accelerometer: Detects the
acceleration of the phone. Picks
up quick acceleration or abrupt
braking - two of the main factors
that determine a driver’s score.
The Technology Under the Hood
(contd.)
 Gyroscope: Monitors and
maintains the phone’s orientation
during movement. Helps measure
how smooth or sharp the turns
are, which directly factors into the
driver's score.
 Magnetometer: Works with the
accelerometer and gyroscope to
detect the phone's orientation.
 Machine learning and AI
algorithms are also used in the
process.
Disruption in Industry Likely Long-term

 Root Insurance has attracted the interest of both customers and investors.
 824% growth in insurance premiums in 2019 over 2018.
 $523 million raised in investor capital (as of Sep 2019).
 Other, more traditional, companies like Progressive are also following suit.
 The changes look promising so far and a long-term transformation in the
auto insurance industry could be near.