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With all the energy spent the last number of years on “disrupting” the insurance industry and “innovating” new ways to address risk, it’s pretty surprising to me one of the biggest opportunities has been overlooked – teen drivers.
If you’ve been around the insurance industry for too long, you probably have a staid view of teen drivers. They’re the high risk ones you need to charge a fortune for because they cause all the accidents.
That is still true in some cases, but, a lot has changed in the world of teen driving and, it may shock you to find out, little has changed in insurer pricing of teens.
What’s New?
For one thing, Uber. When teens and 20 somethings go out, a lot of times they want someone else to drive. That is clearly good for frequency, especially on weekends.
Your teens are far less likely to drive drunk than we were. Not because they don’t get drunk. Because they call an Uber when they do.
What about driving to after school or summer jobs? Yeah, if you haven’t figured it out yet, kids don’t get jobs while they’re in school anymore.
What about going to the movies or to a concert or even to visit friends? You must not have kids. They don’t do these things anymore. They meet online, not in person.
I could keep going, but you get the idea. Kids today drive a lot less than their parents when they were young.
Only 40% even have a license! Of those that do, many hardly drive at all. Getting a car is no longer a rite of passage. Kids today have no idea what Springsteen’s lyrics were about.
Kids today don’t do this anymore
Insurance Impact
How have insurers responded to teens driving less? They haven’t. Sure, there are some usage based programs for teens, but they’re viewed as spying by parents.
For the most part, teens still pay a fortune once they get a license, regardless of their driving behavior or usage.
We may pay more for our teen than we do for my wife and me combined (more on that below). We are not the exception.
You would think there would be an amazing opportunity here for an insuretech to figure out which teens are high risk and which are low risk and price them accordingly.
Who is doing this? Apparently, nobody!
It’s a huge market. While I don’t have insurance company data to reference, I can estimate. Nationally, ~15% of licensed drivers are under 25. If they pay twice as much for insurance, that would suggest they are ~ 1/4 of industry premium! It’s a huge segment.
And yet, every teen (or under 25 living at home) is treated the same. Oh wait, I forgot, you can get a “good student” discount if your kid has solid grades.
The Most Inefficient Pricing In Insurance?
There is absolutely no matching of price to risk for teen drivers. As I mentioned, my teen pays about 150% of my wife and me combined. He drove less than 500 miles last year, probably a lot less.
He has no interest in driving and only does it when necessary. On a per mile basis, he is probably paying 25X what we are. This is ridiculous.
Oh, and it gets more insane than that, as I’ll show below.
How is it no tech savvy startup can figure out how to tell good teen risks from bad teen risks?
Or better yet, lazy, slow to change insurance industry…with all your data, why can’t you figure out which teens bring more risk than others?
For decades, I’ve heard about the gazillion cells insurers have where they know the difference between a red Camry with 30,000 miles in Morristown, NJ and a 750 credit score vs. a blue Camry with 31,000 miles in Morris Plains and a 752 credit score.
But you can’t figure out how to price teens who drive vs. teens who don’t? I don’t believe you.
You know what I believe?
The Most Profitable Line In Insurance
I believe insurers are minting money off teen drivers. They continue to price them as if it’s 1975 when they were having their last chance power drive instead of 2023 when they are scrolling Instagram.
I don’t have the data to prove it, but I have enough anecdotes to believe I’m on to something.
Here’s another one: When a kid leaves for college without a car, what they should pay for insurance?
Something approaching zero, right? They don’t have a car and they are unlikely to drive someone else’s, especially in the days of Uber.
I was told when my kid left for school we’d qualify for a special discount, since he no longer will be driving actively. Guess how much it was? 15%! 15%???
The kid will drive 0 miles for the next nine months!!! What are we insuring against? Yet we still pay more for him not to drive than my wife and me pay combined.
Now, some of you wise auto types will say “take him off the policy”. Great idea! It would mean he couldn’t drive on break, but that might be acceptable.
Except…no we aren’t even allowed to take him off the policy once he goes on. I swear to you this is what I was told.
We have no choice but to spend more than $1000 a year for someone might drive 100 miles (when he’s home to visit). That’s over $10/mile!!!
So yeah, I’m pretty convinced there is a market to disrupt here.
The Insuretech Angle
What have I been preaching here forever? Startups need to focus on opportunities to outperform on underwriting. Guess what? This is it, baby! Go get it!!!
This is a great case of where technology can add value! Sure, there will be a UBI and pay per mile element that already exists, but supplement that with predictive data based on maybe social media usage or hobbies or if they have a part time job or data from other kids at their high school.
There’s plenty of things you can look at. Data mine away! But I’m going to give you the one that is likely most predictive. Is there a third car in the home?
If not, I bet you that kid doesn’t drive much. If there is, they probably are a heavier user. This isn’t some insurmountable problem. It’s so easy, even a Valley Bro can code it.
You know what else? If there is one thing Lemonade has proven, it’s that new companies can get the attention of young people better than the boring old insurers.
A smart, savvy startup should be great at marketing directly to teen drivers! It’s right in their wheelhouse.
You know what else? As those drivers age, they might be willing to buy a standard product from the same company later and now you…expand your TAM! $10B valuation here we come!!!
PS: the fact that nobody has thought of this is such a huge freaking indictment of the fintech VC community and their lack of industry knowledge.
PPS: If someone decides they’re going to steal my idea and create this, I reserve the right of first refusal to be non-executive chair so you don’t totally free ride me, like dangerous teen drivers free ride those like my teen!
If you actually execute well, Informed will be more than happy to recommend a great solution to parents with teen drivers.
Incumbents
I haven’t forgotten about you! Before some newco comes along and creates a big headache for you, how about do something a little innovative and figure this out yourself?
You are going to lose customers who are sick of overpaying for their low risk kids. I would argue it’s actually the greatest shopping risk you have for long tenured customers. People don’t like paying something for nothing.
Investing in better teen driver rating models will pay for itself through better retention of their parents. This is a no-brainer.
It’s also a great way to create loyalty by showing your better customers that you recognize their kid is a better risk. Everyone likes to be told their kids are special!