Leonardo Cortina
Founder and CEO of miituo
miituo
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Insight

Employing Pay-per-Kilometer Insurance to Boost Market Penetration

Sat, 09/01/2018 - 10:15

Drivers who spend little time on the road are more prone to roll the dice and choose not to have car insurance rather than pay annual premiums that, to them, makes no sense. But there is an opportunity to attract these potential customers with the right products, says Leonardo Cortina, Founder and CEO of miituo, which partnered with insurer Seguros Atlas to provide car insurance per kilometer. “Mexicans may not have a culture of buying medical or civil liabilities insurance,” he says. “But we are aware that vehicles are a key part of our patrimony,” Cortina says.
There were around 30.1 million registered cars circulating on Mexican roads in 2017, according to INEGI, but only a fraction of the country’s vehicular park is covered by insurance, which Cortina attributes to an absence of products that cater to the uninsured market or people who drive only once or twice a week. The company uses digital means to offer pay-per-kilometer insurance coverage for that segment of drivers who want insurance according to how much they drive. “Paying for coverage according to the driven distance transforms insurance from a fixed to a variable cost,” says Cortina. “Some clients can save up to 80 percent of their insurance premium.”
The idea for the company’s business model derives from Cortina’s experience in fleet management. “Insurance is always a complex topic in transportation because coverage and premiums are too flat,” he says. Cortina points out that during his tenure in fleet management there was no distinction between cars for executive use and commercial vehicles despite the abysmal differences in incidence rates and kilometers traveled. “We wanted our product to be completely variable,” he says. To that end, miituo partnered with insurance company Seguros Atlas. “Our partner focuses on charging premiums and handles incidents while we focus on commercialization, branding and product development.”
The insurance industry works by pooling premiums in common funds that insurance companies use to make payouts, explains Cortina. “miituo came up with a different scheme of mutuality in which each user has its own according to the kilometers driven,” he says.
Cortina adds that digitalization is at the core of miituo’s business because of the nature of pay-per-kilometer insurance, its commercialization process and the challenges of offering this kind of insurance. He says that auto insurance can be easily sold digitally because it is commoditized. “Available information regulates market prices and clients are becoming fond of purchasing coverage digitally because it is fast and efficient,” he says.  The company relies on digital channels such as Google and Facebook to reach its target clients.
Cortina enumerates several challenges that miituo had to overcome to offer pay-per-kilometer insurance. These include knowing the distance users drive each month, processing large amounts of digital transactions and calculating premiums in a 100 percent variable insurance scheme. Cortina explains that the company pondered using GPS devices and an app where drivers would log in before embarking to glean the necessary information on distance driven. But the company chose to create an app where users take and upload photos of their odometers. “Clients tell us how much to charge them by reporting their kilometrages to miituo on a monthly basis,” he says. miituo’s clients purchase coverage digitally, install the company’s app on their smartphones and use it to take and upload a few photographs of the insured vehicle to show its current state. “Clients can only use miituo’s app to take and send these pictures, which protects us from any possible fraud,” says Cortina. miituo then asks clients to use the app to send a picture of the vehicle’s odometer showing its kilometrage. From that point on, clients will receive notifications that remind them to report their kilometrage each month and miituo charges them according to respective changes in the reported kilometrage.
The challenge of dealing with large volumes of digital operations are directly related to miituo’s model that charges on a monthly basis. “Clients usually interact with their insurance providers once a year unless they suffer an incident,” says Cortina. “miituo charges clients differently every month, so digital transactions multiply twelvefold.”