INSURANCE: Porsche and Mile Auto to cut premiums 40% using AI for pay-per-mile insurance.

Insurance is the holy grail for Artificial Intelligence and the Internet of Things in finance, because it requires a messy interaction with the physical world, rather than living merely in a spreadsheet, database, or blockchain. To this end, we like the news of Porsche partnering with Mile Auto on pay-per-mile insurance. There is a reasonable demand-side argument: owners of Porsches don't drive the car as a primary automobile, and would prefer to only pay insurance for the time they are actually on the road. The second argument is even more fun -- owners of Porsches don't want to be tracked via GPS or a black-box by something like Cambridge Mobile Telematics ($500MM from Softbank) or Metromile ($90MM from VCs) because they are fancy and private people. No tracking please!

How does the thing work? You pay a cheap base rate to Mile Auto, and once in a while take a picture of the speedometer's reading in the app. The picture is translated to numbers via a machine vision algorithm, and your per-mile variable insurance rate is calculated on the spot. The company claims this will lead to a 40% reduction in premiums for the average user. For what it's worth, we hear that the growth of renter's insurer Lemonade is similarly fueled by people who are forced to get coverage (e.g., by the landlord) but are looking for the most discounted, easy to manage product. What does that mean? It means that the low risks self-select out of the insurance pool, driving up the price for unsophisticated non-techies that don't drive a Porsche.

Let's take the argument to an absurd extreme. On the developer website Programmable Web, there are 59 separate APIs that developers can use to build insurance apps and connect into underwriting engines and carrier capital. From Clearcover (affordable car insurance in your app!) to Haven Life (term life insurance on any website or application!) to Lemonade, OCBC Materntity, Qover and a plethora of others, developers have real choice in how to weave these more digital insurance products into the attention black holes in your phone. What happens when the tech-forward customer considers only these options, and the conservative customer considers only insurance sold by agents and direct mailing? Could there be a bifurcation of risk profiles that fundamentally injures the risk-pooling function of the industry? Perfect information about risk collapses the value of hedging. Half of us will know and live in a predicted future, while the other half will pay for the ignorance.

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Source: PR Newswire (Porsche), Company websites, Programmable Web (Insurance)