White paper: Inventing a new fintech product for cars

Background

In March 2020, Uproar.car sold the very first digital and fully self-serve subscription car warranty. To accomplish this, I developed a new legal pathway that overcame product roadblocks that had stopped others, and I partnered closely with our marketing team to advertise and sell our automotive policies without the need of a sales team. This new product disrupted the extended warranty industry by offering convenient, fair-priced protection from unexpected car expenses. Uproar's subscribers saved $1,800 on average when compared to traditional dealership warranties. Also, customers were twice as satisfied. The industry took notice – within 12 months, three competitors began to copy my innovation using the new legal pathway that I had established.

Getting started

In the spring of 2018, I joined two co-founders and was hired as the first employee at a seed-stage startup named Uproar.car. Uproar was blessed with an unusual situation: the company had investor seed funding before it had a business model. So, after months of trial and error to validate product ideas the three of us found a huge market ripe for disruption: the extended car warranty industry. An extended car warranty is, in simple terms, a legal contract where the seller promises to pay for car breakdowns (e.g. a faulty transmission). Importantly, these legal contracts are governed by individual laws set by each US state. In 2018, US consumers spent $38 billion on extended car warranties. Despite the large market size, the industry suffers from low consumer satisfaction. Extended car warranties sold by industry incumbents like car dealerships are a bad deal for consumers. Dealerships often markup their products 200% to 300% and so the typical "5-year" $3,000 extended car warranty costs less than $1,000 to sell and insure. Extended warranties solve an important pain point: many Americans struggle financially with unexpected car breakdowns. The Federal Reserve drove this point home in a 2019 report that states “39% of Americans do not have $400 in savings to pay for an emergency event.” So, at Uproar.car we sought to protect Americans from unexpected car expenses by providing a service that was fair to the consumer. I knew that we would need a highly differentiated product to realize this mission.

The innovation

I strategized three key differentiators to the traditional extended warranty.

Get rid of the salesperson

To make the product fully self-serve, I hired a product and UX team and we partnered closely with our engineers to build an e-commerce website from scratch. We used easy-to-understand language to simplify our product and made sure to point out any coverage exclusions upfront.

Non-predatory pricing

To price our product at a low price I needed to estimate our break-even cost to sell a subscription. The most important variable to calculate this is called the "reserves", or how much cash should be set aside to cover future car breakdowns. I gathered 3 datasets to calculate the reserves and build our pricing model. 1) suggestions from a contracted actuary, 2) reserves from a company that sought to offer a similar monthly-warranty product (but canceled their plans before launch), and 3) a dataset that contains 25 years of historical claims data in the US (10M rows of data).

Make the claims process hassle-free

Traditional warranty customers have trouble finding their paper contracts when a breakdown occurs. To streamline the experience for users, we built an iOS and Android mobile app with easy access to digital contracts. It also helped customers make a claim without calling a human.

Challenges

There were two significant roadblocks to innovate and launch our new fintech product.

Reduce fraud risk

Customers must certify that their car is not currently in need of repair prior to subscribing; however not every customer is honest. I predicted that Uproar would be exposed to a fraud scheme where a customer subscribes, lies about their car’s condition, then proceeds to submit an expensive claim – effectively walking away with a free repair. Looking for answers, I surveyed 100 Americans who had experienced a car breakdown. I found that in the event of a breakdown, drivers want to fix their car fast because they rely on their car to commute each day. This led me to a single viable solution: a 1-month waiting period before customers are eligible to make a claim.

State laws

State regulations were the largest hurdle to launch a true month-to-month extended car warranty. All 50 states have unique laws to govern extended warranties and I learned that other businesses had deemed a monthly subscription incompatible with these state laws. Most states included a one particular troublesome rule in their regulations: a customer must be eligible to make a claim during the term of their contract. The implication was that Uproar could not include a waiting period (essential to reduce fraud) in its month-to-month warranty. After 2 weeks of diving deep into service contract law, I found a workaround that state regulators would approve. I could define a waiting period outside of the scope of a contract. Our mobile app would enable this workaround. Process-wise, a customer would subscribe on our website, wait 1 month, and then would sign their contracts in our mobile app. State regulators offered no complaints with this solution so, using my workaround, Uproar was approved to sell extended car warranties in 44 states by the end of 2020.

Results

I was successful in innovating the first monthly subscription, fully self-serve extended car warranty. Customers saved $1,800 on average compared to traditional dealership warranties and Uproar.car’s Android and iOS apps both maintained 4.5-star ratings: a reflection of high customer satisfaction with our claims process. My innovation could not be patented, so within a year several competitors, such as Carshield and Olive, began to replicate my invention. Uproar.car merged with Olive in January 2022. Olive continues to expand in market share and upholds the customer experience that Uproar.car pioneered: an honest, and fair-priced alternative to dealership warranties.