Personal car insurance policies typically are underwritten for two main factors: the profile of the driver and the vehicle that driver owns. But that doesn't work for subscription services, where a subscriber's flat monthly fee includes insurance. That appeals to consumers but can be a headache for dealerships and others running subscription services because they need to offer insurance on all vehicles in the fleet, whether they are on the road or not.
"The question becomes, how can we eliminate these costs when the car's not actually generating revenue?" Heckman said.
Again, the onboard device can help. Because the device can prove that a vehicle isn't currently in use, those vehicles waiting to be swapped into subscription service don't incur the same insurance costs as those on the road.
While most dealers using Flexdrive charge customers a flat fee to use their vehicles, Heckman believes that subscription service insurance would work best as a usage-based premium with a cap. For the same vehicle, a subscriber who drives farther could pay a higher premium.
"There is a high probability that in the future, cost per mile is as relevant, probably more relevant, than cost per time," Heckman said.
Assurant Inc., of New York, underwrites Flexdrive's vehicle insurance. Kunal Malhotra, vice president of innovation for Assurant's Global Specialty business unit, said that because Flexdrive prescreens its members, rejecting those with bad driving records, the insurance model for the service leaves the driver out of the equation, focusing only on what happens to the vehicle.
The insurance company is not privy to all of the data the devices collect, Malhotra said. Flexdrive reports only applicable vehicle usage data to Assurant. "We build a program that's based on the information," Malhotra said. "An overwhelming amount of data stays with Flexdrive."
Flexdrive is not unique in using these technologies.
Heckman believes the majority of subscription providers are embedding some sort of technology into their fleets. Flexdrive obtains the devices and technologies from multiple suppliers.