Auto insurance that relies on credit scores, homeownership and demographics has many structural biases, said John Henry, co-founder and co-CEO of Loop.
“Much of the pricing is based on demographic factors,” Henry said. “If you look at the rate statements of the top ten carriers, a credit score is 65% predictive. Your credit, your income, your profession, all of these things predetermine your rates. When we saw this we were stunned. We thought this was at all indicative of your risk.
Based on actual rate statements from the main insurance provider, a driver could have a DUI and two speeding tickets, but live in a more affluent neighborhood
area and be well educated and have a better rate than someone who lives in a low income area with a perfectly clean driving record, Henry said.
That’s why Henry started Loop with co-founder and co-CEO Carey Anne Nadeau, an MIT-trained entrepreneur and town planner who previously worked at the Brookings Institute and the Urban Institute, to provide car insurance based on the a person’s driving record.
“Loop is all about technology and it’s powered by AI,” Henry said.
And on Saturday, Loop officially goes online in Texas to provide auto insurance for drivers statewide.
The company already has a waiting list of 30,000 people, Henry said. To raise awareness, Henry and Nadeau drove a statewide “mom van” to meet with potential clients in Houston, San Antonio, Austin, and Dallas-Fort Worth.
Henry and Nadeau founded Loop in July 2020 following the murder of George Floyd by police in Minneapolis. The founders wanted to do something to bring more equity to people in underserved communities.
“We were inspired to do something great,” said Henry.
The loop closed with an initial funding round of $ 3.25 million in January led by Freestyle VC. The company, whose founders resided in Washington, DC and New York City, moved Loop’s headquarters to Austin earlier this year. They also quickly grew from four employees to over 30 employees. And they expect to be over 100 in the next six months and 1,000 in a year. Loop expects to close its next funding round soon, Henry said.
Austin is a hub for technology and insurance and a particularly attractive market for innovative startups, Henry said. Loop recently joined InsureTech Austin, an organization that meets monthly.
“We love the counter-culture that exists here,” said Henry. “The people here are talented and upbeat, and they love what comes with a newcomer.”
Loop, which is a B-Corp, is a managing general agent who, unlike traditional agents and brokers, is vested with the underwriting power of an insurer. It bases its insurance rates on the behavior of the driver that it collects from its mobile application installed on the customer’s mobile phone. The app can detect if the person is using the phone while driving, it can also measure other factors like speed and hard braking.
Loop also used data to define and reduce a driver’s insurance rate based on where they live and the accident rate in that region. Loop draws on databases on traffic accidents, weather, road conditions, etc. The app also uses artificial intelligence and machine learning to recommend safer routes for drivers to avoid accidents, Henry said. It has a partnership with TomTom to provide real-time traffic alerts and mapping.
Loop is aimed at Gen Y and Gen Z, who are avid mobile phone users and are comfortable with sharing data on their driving behavior for fare discounts. It’s also going to be popular with renters, Henry said. Because many insurance companies give a 15 percent discount to people who bundle home and auto insurance, he said. That doesn’t mean landlords are 15% less risky than renters, he said.
By making auto insurance rates based on behavior and not other demographics or external factors, Loop creates a fairer system for everyone, Henry said.
“When you’re valued on the things that matter, you end up saving a ton of money,” Henry said. “If your credit score is right, it shouldn’t matter. If you are working a blue collar job, that shouldn’t matter. If you haven’t been to Ivy League and can’t get this discount, that shouldn’t matter either, at least according to our schedule.
For many structural reasons, many communities do not have good credit scores, Henry said.
“I reflect on my own experience,” said Henry. “I grew up below the poverty line. My parents immigrated from the Dominican Republic. We were poor, but my mom and dad are great people. But they didn’t have a career. They had jobs. They haven’t learned the language. My mother was a babysitter and my dad was a presser in a dry cleaners. And so, we have always lived in low income areas. “
But they were also super safe drivers, Henry said.
“And it’s crazy to me that communities that need breaks the most and often have good driving records are often penalized and paying the most,” said Henry.
On average, many of these communities pay 70% above average fares, according to data reviewed by Loop, Henry said.
People need insurance for everything from buying a car to renting a house, and it’s conveniently invisible, Henry said.
Loop plans to roll out first in Texas, then launch into other markets like Illinois, Pennsylvania, and Ohio this year, followed by New York, Connecticut, Maryland, Washington, DC, Virginia, North Carolina, and Washington State in 2022.