Metromile: The Palm Pilot of Insuretech

Metromile, the pay by the mile auto insurance carrier, has been in the news of late with its announcement to go public through a SPAC. Metromile is one of the original insuretech carrier models having launched in 2011 and going full stack in 2016.

Missed Opportunity

However, being the first mover doesn’t always create an advantage. Metromile, despite its head start, is only running just over $100M of premium. Root, its nearest competitor, started four years later, is trending at over $600M.

In fact, Metromile’s growth has been essentially flat for eight consecutive quarters. This is a particularly surprising result given Covid should have been a big spur to growth.

Rather than have to announce customer rebates like others, Metromile should have been able to simply remind people they could save a lot of $ paying by the mile. Growth should have taken off!

So what went wrong? According to the company, they were focused on getting their unit economics right. They claim to have retention over three years already and lifetime customer value well in excess of acquisition costs.

Those are clearly impressive numbers, even if there is reason to believe they may be a bit exaggerated (see the fine work from Inside P&C on the topic).

However, if retention is really that strong, growth should be better than the other startups as less new business is required to drive overall top line. Flat overall growth implies new business is actually declining!

So is Metromile the P&C version of DoorDash that figured out how to build a sustainable business model or are they a niche business that has tapped all its ATAM?

A Confused Tortoise

Remember, DoorDash has attractive unit economics AND #1 market share. Metromile’s unit economics only appear to be working because it doesn’t grow!

Metromile apparently took the lesson of the Tortoise a bit too literally. Just because a Tortoise doesn’t pursue irrational growth for the sake of impressing top line focused cheerleaders, doesn’t mean the Tortoise can afford to ignore growth altogether until they get the unit economics right.

Whether one thinks of oneself as a Tortoise or a Hare, it is always best to be aware of one’s fatal flaws. While slow and steady wins the race, slow and stopped never reaches the finish line.

Just as the cliff risk for a Hare is capital markets closing before they figure out how to stop burning cash, the cliff risk for a Tortoise is becoming irrelevant because it never achieves the requisite growth to remain independent.

It appears Metromile realized they were going over the guardrail but valiantly managed to hang on to the edge until a rescue came along. In this case, your friendly neighborhood SPAC sponsor.

Now, Metromile is undergoing cosmetic surgery to look like a Hare and promising $1B in GPW by 2024. But once a tortoise, it it hard to change one’s…shell?

It is unclear why management thinks a sudden acceleration in growth is likely. If they couldn’t take advantage of Covid, how will they take advantage of the post-vaccine return to normal driving?

The Palm Pilot

Unfortunately, while Metromile was taking its time figuring out how to be profitable, life passed it by. Several legacy carriers have introduced their own pay by the mile products including Allstate, Liberty, and Nationwide. With advertising budgets to support them.

If I drive less and want to save money, I’m much more likely to be aware of Allstate’s product than Metromile’s. The race is over for this Tortoise.

Some of you may remember the Palm Pilot. It was the first IPhone. Really, it was the first Blackberry. If you don’t remember it, that’s the point. While they were the progenitor of the mini computer you always carry with you today, they were a product, not a company.

Blackberry came along and did it better and then Apple and others took over from there. And only those of us with long memories recall when we had the cool new toy called a Palm Pilot.

My very first insuretech post highlighted that the big name startups were largely products, not companies. That criticism still holds today. Metromile came up with a great idea. Unfortunately for them, the beneficiaries will be the large incumbents who can sell their own version rather easily.

The Hare Wins This Round

For all its issues, Root is a much more viable model than Metromile today. Sure, their unit economics don’t make sense and they are burning cash like kindling, but at least they have momentum. Momentum buys you time. Time gives you a chance to fix things. There is option value.

Metromile is stagnant. It is very hard for a startup to hit the growth wall and then successfully reignite growth…especially if you are doing it with the same concept as before…especially after others have copied your idea.

Good for them that they found a SPAC to save them. I’m sure they’ll see some rebound in growth with the fresh capital, but $1B in four years? C’mon now!

If I were running Metromile, I’d take the SPAC lifeline, look to build some acceleration in growth, and then sell the company in a couple years to an incumbent who feels there is value in the technology.

Then, ten years from now, when we’re talking about whoever the Apple of auto insurance ends up being (heck, maybe it will be Apple???), we’ll remember how Root was the Blackberry who got further than the Palm Pilot called Metromile, but at the end of the day, they were just memorable chapters in the history book and the auto insurance industry will likely move on without them.