Study questions insurance costs on vehicle subscriptions

Consumers have embraced subscription services. In recent years, everything from on-demand TV programming to clothing deliveries has become available in exchange for monthly fees.

Automakers have attempted to follow the trend, with some offering subscription services to consumers seeking an alternative to traditional vehicle ownership. These programs often bundle vehicle, insurance and maintenance costs into a single monthly payment and allow customers to swap in and out of vehicles at varying frequencies.

But consumers haven't quite warmed to the concept. One reason is that the insurance costs, though covered by the automakers, are more expensive than traditional policies, and that contributes to pricing that repels potential customers.

New research from Arity, a mobility and data analytics company founded by Allstate, suggests insurance companies are essentially pricing these products all wrong. In a study released last week, company analysts say insurers are charging automakers at rates comparable to what large fleet operators pay.

But motorists enrolled in subscription services drive a lot like traditional vehicle owners. If insurance companies can recognize this, Arity says, they could lower quotes for subscription services by as much as 20 percent.

"This new market didn't really have a history, and the insurance companies couldn't build predictive models, so they were overestimating what the risk would be so they didn't wind up losing a lot of money," said Taylor Sandusky, head of strategy and business development at Clutch, a technology company in Atlanta that partnered with Arity on the study.

"They thought the risk was similar to heavy trucks driving down the road," he said. "That's how they came up with these high premiums that burdened the mobility industry."

More than 40 dealers and automakers, including Mercedes-Benz, Porsche and BMW, use Clutch's back-end platform for their fledgling subscription services.

Using a proprietary model, Arity analyzed data from 1,456 drivers on which Clutch had data spanning their collective 228,000 driving days.

Scoring drivers on a scale that attempts to measure risk, Arity found that 78 percent of the scores fell within the "moderate risk" profile, on par with traditional car owners.

Further, Arity found it could identify drivers who fell within the top 5 percent of risky profiles. If subscriptions were declined to those drivers, insurers potentially could reduce their claims costs by 12 percent and pass additional savings along to subscription operators.

"We see these findings as a first step and catalyst to connect more mobility providers with insurance carriers and be confident that their drivers will be safe and good custodians of vehicles," said Grady Irey, senior vice president of Arity's data science division.

Arity, founded in 2016, built a proprietary model of driver behavior that's based on nearly 80 billion miles of historical driving data.

It further maintains connections with 12 million active telematics units and, via Allstate, has more than eight years of data directly from vehicles.