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Is This Chamath Palihapitiya-Backed Insurance Disruptor a Buy?

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Is auto insurance ready for disruption?

Metromile (MILE 10.78%) is an auto insurance company with a unique twist. Instead of charging customers a flat rate premium each month, Metromile charges premiums based on how many miles their customers drive. In this Fool Live video clip, recorded on March 15, contributors Matt Frankel, CFP, Brian Withers, and Dan Caplinger discuss Metromile's business and why it might be such a promising disruptor in its industry.

Dan Caplinger: I'll jump in with Metromile. That is a ticker MILE on the Nasdaq. It's a pretty simple idea. I love simple business ideas. Basically, the idea in Metromile, they're an insurance company and they charge you a base monthly premium. But then instead of just having that be the total price of your car insurance, they add on a charge for each mile that you drive. Basically, the idea is a relatively low flat rate plus a variable rate based on how much you drive. The idea here is to save people who don't drive as much money and it does a good job.

They estimate that the folks who drive 10,000 miles a year on average, say, $541 a year compared to traditional insurance, somebody driving 6,000 saves $741. They're in only eight states now, but they're building up. They've got artificial intelligence-driven app to handle claims and deal with customer service. We've seen that with other insurance companies in the area. It taps really into the trend that we're seeing among younger drivers. Not all younger drivers own cars and if they do, they're still not using them everywhere. They're still going to take advantage of Uber (UBER 2.47%). They're still going to use public transportation. Metromile is rewarding them for not using their cars all the time.

The stock is down. It's been a rollercoaster. It ran all the way up to $20 during the height of the SPAC move. When the high-growth stocks took a drop, it fell all the way back down to 10. Now it's in the middle, around $13, $14 a share. I'm intrigued by this. They're young, they still need to prove themselves but it's an interesting idea.

Brian Withers: I love the approach. Certainly, they're going to have a technology platform that verifies the miles driven and whatnot with your cellphone. I think this has definitely got some legs. I was worried when you first started explaining it, the market wouldn't be big enough. But with more people working at home, I think this has some rich opportunity.

Matt Frankel: I live in an area where the average driver drives about 20,000 miles a year just because everything is so spread out. I couldn't see them moving into my market anytime really soon.

Caplinger: You're not the audience, yeah.

Frankel: No. I'm not their target customer but I can definitely see they're saving money. One of my biggest complaints about insurance is that if my wife and I own three vehicles, the most we can ever be driving at a time is two. So why are we still paying insurance for three when we can only be driving two at a time and potentially get in an accident? There's a lot of inefficiencies in the auto insurance business is my point. I love that Metromile is taking a step to address them because, really, I have seen a lot of the technological innovations of the platforms in these insurance disruptors but no one is actually addressing the inefficiencies in auto insurance itself, and I like that they're doing that.

Withers: This company and a number of other companies are innovative and approaching things in a new direction. I think that's a great opportunity for the SPAC process and PIPEs like this.

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Stocks Mentioned

Metromile, Inc. Stock Quote
Metromile, Inc.
$1.13 (10.78%) $0.11
Uber Technologies, Inc. Stock Quote
Uber Technologies, Inc.
$23.67 (2.47%) $0.57

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