Cracking the Code of Car Subscriptions; Part 5: The Power Play of the Insurance Industry

From our CPO, JP Galvao

Part 5 — The Power Play of the Insurance Industry

The insurance sector in the U.S. is nothing short of colossal, boasting over $1.4 trillion in premiums and employing 2.8 million Americans, accounting for a whopping 3.1% of the U.S. GDP. Our legislations, our business dealings, a significant part of our daily life orbits around insurance. Take, for instance, the simple act of vehicle registration. Without insurance? You're out of the game. And if you dare keep a car uninsured without notifying the right authorities? Wave your driving privileges goodbye.

My Floridian neighbors will nod knowingly here. In Florida, for a car that might set you back $299 per month (a rare gem these days), you might end up paying close to $250 for its insurance. An almost dystopian scenario where insuring an asset costs nearly as much as owning it. Why? The actuarial calculations of insurance adjust biannually, while the automotive world sees consumer costs shift with every extended financing cycle.

My tryst with the might of this industry began with VAI's inception. After nearly six months of back and forth, presenting detailed plans and financial projections to various carriers, we hit a wall. The barrier? Our location. Florida, notorious for insurance fraud, was deemed too risky. The outcome? We packed up and moved our base to Atlanta, GA, only to secure our first insurance policy, a full six months after we initially planned to kick off. An entire industry forced us to delay our launch and relocate.

Now, picture this. On one side, there's the Goliath of the insurance sector. On the other, a handful of entrepreneurs, trying to turn the industry on its head by offering a bundled car subscription service, inclusive of insurance. It was sunshine and rainbows, until the claims came knocking. Premiums skyrocketed, and fleet insurance started seeing denials.

Car subscription companies, already juggling a vast fleet of assets, had to additionally wrestle with squeezed margins due to the bundled sale of insurance and cars. Beautiful in theory, but when pitted against one of the U.S's most powerful sectors? Not so much. The key takeaway? Unless you're your own insurance carrier, profiting directly from the bundled sale, relying on the unpredictable nature of insurance costs is a gamble for car subscription companies. A financially healthy car subscription firm either sells insurance separately or runs its own insurance company to ensure a margin.

But insurance isn't the biggest fish to fry. No, that title goes to risk management of residual value in the secondary market. Intrigued? Stay tuned for our next installment.

READ MORE: Cracking the Code of Car Subscriptions; Part 4: The Double-Edged Sword of All-Inclusive Pricing