An evolving auto industry requires new coverage options

We now live in a world of renting, leasing, subscribing, and sharing of services and products, rather than flat out ownership being the norm. From meal kits and clothing to fresh razors and tackle boxes for fishermen, there are subscription services for just about everything. In fact, 15% of on-line shoppers have subscribed to an e-commerce service over the past year, with 46% of respondents subscribed to an on-line media streaming service, according to a recent McKinsey report.

For the consumer, the appeal of subscriptions is about receiving a seamless end-to-end experience. Individuals are willing to subscribe only where automated purchasing gives them tangible benefits, including affordability and personalization, according to McKinsey. So, in addition to clothes and food, what other industries can consumers turn to for great subscription experiences?

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The leasing trend

The shift in consumer behavior toward retail and e-commerce experiences has made its way to the automotive industry with an uptick in leasing over the past few years. Nearly one-third of millennials chose lease options over car purchasing, with the demographic comprising 12% of all leases in the U.S., according to Edmunds Lease Market Report released in 2017. Some reasons for the increase include:

• New technology — Manufacturers have enhanced the technology in cars from self-parking and lane-departure prevention capabilities to entertainment features. Much like mobile phones, consumers demand the latest technology, which is outpacing each year’s car models.
• Depreciation —1% of buyers owe more than their cars are worth, according to 2018 Edmunds Midyear Automotive Market Trends Report. As depreciation accelerates, a car can become less and less of a valuable asset.
• Unexpected expenses — 92% of millennial car owners consider additional car costs prior to ownership, yet many are still surprised at the costs of maintenance (64%) and car insurance (68%), according to a nationwide survey conducted by Harris Poll on behalf of NerdWallet in 2016.
• Financial concerns — For many millennials, the thought of purchasing a car is exciting, yet extremely stressful. In fact, 62% of millennials feel overwhelmed by financial decisions, compared to 48% of Generation X, and 29% of boomers, according to MetLife’s 2018 Employee Benefit Trend Study.

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Ripe for disruption

The evolving consumer mindset and ever-changing auto landscape provides an opportunity to meet new needs with new offerings. Car subscriptions, a new take on leasing, provide consumers with short-term car use. Subscription models cross a wide spectrum of offerings. Oftentimes, original equipment manufacturers offer month-to-month terms, giving consumers the flexibility to swap vehicles as often as the weather and seasons change. For the average consumer, however, month-to-month may not be the most feasible nor cost-effective option.

In closely monitoring these market trends, MetLife Auto & Home saw an opportunity that combines consumer desire for the flexibility of leasing and the need for affordability. In teaming up with Hyundai, MetLife Auto & Home is participating in the financer’s pilot program, Hyundai PLUS. A 36-month “enhanced lease,” Hyundai PLUS provides qualified customers with insurance coverage and maintenance included as part of the lease price.

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Convenience and affordability

Understanding consumers’ concerns over insurance and rising premiums, Hyundai focused on the affordability and convenience of insurance for the pilot program. Qualified lessees use a simple mobile app to answer five questions to enroll in the program and obtain their policies digitally — before driving out of the dealership (those without mobile access may call). With the availability of coverage pre-determined, enrollment is streamlined, enabling finalization of the policy completely on-line. Lease payments remain stable through the term of the lease.

The popularity of subscription services is providing carriers with opportunities to create new and timely products to meet the needs of policyholders looking for affordable coverage options to mitigate their risk.

Kishore Ponnavolu is the president of MetLife Auto & Home. For more information, contact Elizabeth Castoro at elizabeth.castoro@metlife.com.