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Metromile ($INAQ) Investment Thesis
Summary
- Earlier this month Metromile announced they were going to go publish through a SPAC, $INAQ. The company provides Pay-as-You-Go Car Insurance for drivers who install a GPS unit into their car. Data gets uploaded to Metromile servers, and monthly rates are set dynamically based on distance driven and driving habits (as well as other factors).
- The company is well positioned to ride the secular trends of Urbanization and buying habits among millennial and gen z Americans.
- The biggest risk to the company is the Car Insurance industry re-orients vertically where OEMs offer insurance with the purchase or lease of one of their cars. In this case, Metromile is still well positioned to license it's technology and continue to build a Data Moat across it's customer base.
Opportunity
- Trends: Millennials and Gen Z have less wealth than their parents, so we're seeing the popularity of Buy Now Pay Later payment plans spring up across industries. Car insurance is no exception. Additionally, as Urbanization increases, driving habits will change, making Pay-as-You-Go plans financial commonsense.
- Headroom for new business creation
- The company has yet to expand into corporate fleet insurance, something I suspect their technology will be widely applicable to in the future. Most corporate fleet vehicles already have GPS trackers installed in them, so the market is likely crowded.
- Metromile could license it's technology to OEMs or large car dealers like AutoNation to enable them to sell insurance at the time of vehicle lease or purchase.
- Partners: Metromile has developed relationships with several car manufacturers to include push their services when the vehicle is being purchased. In the future, the company may be able to license it's technology or services to companies like ZipCar, increasing their data moat.
- Data: Metromile's Data Moat gets bigger the more people use the service. This data can be used to improve service quality and sold to interested parties like governments, car manufacturers, or Healthcare companies. Flywheel
- Automation: The company's claim process is assisted by AI, providing a quick and easy claim processing experience to customers. Continued investment in this area will allow the company to reduce operational costs, making them more attractive to . They can surge agents when needed similar to SelectQuote.
- Performance: The company claims to have best in class growth and customer retention metrics in their industry.
Risks
- Regulation is always a risk, but increasingly so when it comes to the auto industry. Congestion Taxes and Climate Change legislation may dramatically alter driving habits once implemented.
- Transit: US investment in Public Transit or High-speed Rail may curtail longterm growth. Though these projects are notoriously time and capital intensive in this country.
- Car ownership is decreasing along as Urbanization increases.
- First-Party Insurance: The biggest risk to Metromile is the entire insurance industry re-orienting around vertical integration.
A streamlined process is easy to imagine: Lease a car using a Sub-Prime Auto Loans after a test drive at AutoNation, then get Car Insurance through the OAM or a company like Credit Acceptance Corporation.
OEMs like Tesla could offer their own Pay-as-You-Go Car Insurance. Tesla in particular already has the exact same data Metromile is collecting, and actually probably more considering they know detailed car payment information on their customers.
Counterpoints:
- Independent, cross brand insurers will still exist despite likely vertical integration. Some OEMs may not want to focus on building out this kind of business, others will be too slow to do so if it becomes an "obvious" revenue stream.
- An insurer who offers insurance across vehicle brands will have more data and increased customer loyalty than insurance provided by OEMs.
- For the next 40+ years, the vast majority of vehicles on the road will be Petroleum based used cars made by traditional manufacturers. Drivers will be experiencing the same secular trend of urbanization, and they will need to be insured.
OEMs might not want to be in the insurance business, or Antitrust regulation might prevent them from entering.
- Competition from traditional insurance companies like Geiko, Farmers Insurance, and Progressive (Insurance) already exists and will likely increase. I believe the company's First Mover Advantage matters, and has made it's customer acquisition muscle is stronger than it's competitors.
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