Learn how using usage-based insurance can lower your total cost of operation for your fleet.
Episode 165: Work trucks and commercial trailers only make money when they are being used. But for some vocational applications, there are times throughout the year when the equipment sits unused but that doesn’t mean the costs to insure and maintain that equipment stops.
In this episode, we are going to challenge the status quo in the trucking industry and talk about usage-based insurance.
My guest today is Michael Vega-Sanz the Co-Founder of Lula.
Lula is an insurtech company that is building the insurance infrastructure for the modern economy. Lula currently services hundreds of customers around the country, ranging from SMBs to multinational corporations. Lula has raised $22 million funding and most recently closed a $19 million Series A that was co-led by Founders Fund and Khosla Ventures with follow-on investments from Softbank, Bill Ackman, Steve Pagliuca, and more.
Guest Website: LulaTrucking.com.
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Transcript of Episode:
You are listening to The Heavy-Duty Parts Report. I’m your host, Jamie Irvine. And this is the show where you get expert advice about heavy-duty parts that keeps trucks and trailers on the road longer while lowering cost-per-mile.
Work trucks and commercial trailers only make money when they are being used. But for some vocational applications, there are times throughout the year where the equipment sits unused. And that certainly doesn’t mean that the costs don’t keep adding up while that equipment’s sitting, just because it’s not in use and making you money doesn’t mean that the bills stop coming. So in this episode, we’re gonna challenge the status quo in the trucking industry. And we’re gonna talk about usage-based insurance. My guest today is Michael Vega-Sanz. The co-founder of Lula. Now Lula is an Insuretech company that is building the insurance infrastructure for the modern economy. It currently services hundreds of customers around the country ranging from small businesses to multinational companies. They’ve raised 22 million in funding, and most recently closed a $19 Series A that was co-led by Founders Fund and other venture and investment firms. So I’m excited to talk to Michael, let’s get him on the show. Michael, welcome to The Heavy-Duty Parts Report. So glad to have of you here.
Thank you so much for having me. It’s truly a pleasure to be able to just share our story and our journey and tell you a bit more about what we’re doing. So thank you for the opportunity. And I really, really do appreciate it.
Well, I kind of covered it in the intro, Michael, but what’s the status quo in ensuring commercial equipment that isn’t being used every day in the trucking industry?
Yeah. So one of the frustrating things, whether you’re in the commercial auto space, the commercial trucking space, or whether you’re just paying for insurance for your own personal auto is that typically an insurance company is going to give you a fixed monthly or annual premium. And it doesn’t matter how often the truck is used or how little the truck is used. The price remains the same, and it doesn’t matter whether I drive that truck, you drive that truck, or my grandmother drives the truck. The price remains the same. And so here in the state of Florida, the average truck driver can be paying anywhere from $1500 to $2,000 a month per truck. It doesn’t matter if that truck is used one time during the month or 30 times during the month, the price remains the same. And from our perspective, we think that makes no sense in today’s world of innovation and technology. You’re essentially paying for 365 days of coverage. Yet the average truck drivers out on the road only roughly 220 days out of the year. Right? So that’s where we said, Hey, there needs to be a better way. Something needs to change. And that’s why we are working on, and we’ve launched this pay per day insurance model.
Right? So how did you discover this problem? You’ve got a connection with family. Tell us a little bit about that story.
Absolutely. So taking it a couple of years back, when I was a college student one night, I really wanted pizza from my favorite pizza shop, but they wouldn’t deliver a campus. And I said, wouldn’t it be cool if there was an app that let me rent a car from another student? And so I shared the idea with my brother and he said, why don’t we build it? So we built the ugliest app you’ve ever seen, but it was just good enough that it allowed us to rent cars from other students on campus. So if you think Airbnb, but for cars and we focused ourselves on college campuses. And as you can imagine, figuring out insurance for car rental platform, where you were gonna let 18 and 19 year olds rent a car was just crazy. And so we got a very strong and intimate understanding of how broken and expensive and antiquated the world of insurance was.
And through that journey, which was about a five year journey, through that journey, we learned so much about insurance that we felt like, Hey, there’s a ton of opportunity here to do things a better way, to do things a more fair way. And so when the pandemic hit and college campuses shut down, my twin brother and I actually went to visit our older brother in central Florida. And our older brother was doing some hurricane cleanup. And I went to his, went to his farm and I saw a bunch of trucks just parked in the property. And I said, Hey, Mac, what’s going on with all these trucks? How long has it been since they’ve been used? And he said, oh, well, you know, we just recently finished this last cleanup about two or three months ago. So trucks haven’t been really been used in two to three months and I said, oh, okay and when, when are you going to use them again? And he said, well, I’m bidding out a few projects right now. So whenever I get that, and I said, well, when will that be? And he said, well, we’re in the middle of the pandemic who knows maybe six to 12 months. And I said, wait, max, wait, wait, wait. I said, you’re paying insurance on these trucks. Yeah. And he said, yeah. And he said, and I said, wait, and you won’t, you might not use these trucks for another 12 months. And he’s like, yep. And I said, wait, that means you’re paying, or you will have to pay for approximately 15 months of insurance coverage. And yet the insurance, company’s not going to have any exposure to risk. And he was like, yep.
And that’s when I realized, Hey, not only have I seen how broken and messed up the world of insurance is, from my perspective, running the app and in the world of technology. But now I’m seeing how it affects people in the commercial trucking and market. And so that’s actually how we had the idea. And so we began to realize, Hey, what if we can implement a product or a program in which truck drivers only pay for insurance for the days they are out on the road. And so we started working on that immediately and that’s how we got into it.
As you tell the story, I just see so many opportunities, paving companies that only work part of the year. I think of commercial fleets that are over the road that have back up trucks that only kind of use once in a while when the main truck is in the shop and, and can’t be used, like my mind just went to probably six or seven more examples like that. And when I think about how fleets are always trying to figure out how to lower their total cost of operation, you already threw out a couple numbers. It could be a $1000 to $2,000 a month in insurance. We start multiplying this by a number of vehicles and all of a sudden you’re talking a significant amount, amount of money.
You’re absolutely correct. And the thing that’s really frustrating is the way that truckers get treated today in today’s society. And so one of the things I wanted to do on this podcast was I actually wanted to go ahead and just moment to express my gratitude and appreciation for truckers. I think I saw something recently that 70% of the goods in our homes were once on a truck, if not 80%. So if you think about the backbone of America, truckers are truly the backbone of America. And you think about insurance premiums over the last 10 years, the average wage for a trucker has remained flat the last 10 years, right? But the average insurance premium has increased by more than three X. And every year you have insurance companies that say, Hey, we need to, we need to increase rates. Why do you need to increase rates?
Well, cost of capital is higher, nuclear verdicts. Okay. But and I saw this with my brother, my brother had never been involved in an accident. Max has 25 trucks in his fleet. He’s done everything that the insurance company tells him year after year to do, to keep his rates lower. And every single year, year after year, they increase the rates. How is that fair to the average trucker? How is that fair? It’s easy to make that call when you’re in a board room or you’re in an office room or you’re in a nice air conditioned office and you’re wearing a suit and you can increase rates because it just feels better. But I think there’s a disconnection because every time you just increase rates, because you wanna feel better because you need a term profit margin. That’s the difference between food on the table and food not on the table for a family.
That’s the difference between an additional Christmas gift and not an additional Christmas gift. Right? And so for us, that’s always been a huge point of frustration. You have people that have never done a load in their life. You have people that have never touched a truck in their life. You have people that have never spent a day on the road. They’re the ones calling the shots. And to us, it’s completely, completely unfair. And for us, commercial trucking is where we wanna start. But beyond that, we think we think, you’re exactly correct. There’s so much real world application here. And we think there’s a much, much better way to do it. We don’t think we need a price gauge or take advantage of our customers. We think there’s a way to do it in which it’s fair to our customers. It’s fair to us. And it’s just the right way to do business.
We’re gonna take a quick break. We’ll be right back. Don’t have a heavy-duty part number and need to look up a part? Go to parts.diesellaptops.com or download the app on Apple or Android to create your free account. Looking for high-quality fuel injection for heavy duty applications? Having one supplier for fuel injection allows you to better serve customers by providing them with a complete line, which increases your sales and profitability. Learn more at ambacinternational.com/aftermarket. We’re back from our break. And before the break, we were talking about how the trucking industry is the backbone of society. If you’ve been listening to The Heavy-Duty Parts Report, you’ll have heard me say that. And my guest Michael just finished expressing his frustration for the way truck drivers and really the trucking industry as a whole is sometimes treated because there’s a lack of understanding of how important that industry is. Michael, what percentage of commercial vehicle owners are using this usage-based insurance model today? I was shocked when I heard the percentage, but share it with our audience.
Yeah, the percentage, it’s only about 5%. Yeah. So only about 5% of truckers today use usage-based insurance or activity-based insurance or episodic insurance or pay per day insurance. And the reality is, is the numbers like only 15% of truckers even know that’s an option. And historically what’s really gone on is if you think about who’s really using episodic insurance or activity-based insurance, today, it’s larger fleet companies that have access to more sophisticated systems. They have access to better telematic devices. They have access to better technology and therefore they can work with insurance companies to get better rates and better coverage. Right. And what’s interesting is if you look at it just from a risk perspective, what you find is that a trucking fleet of a 100 or 50 trucks has a very similar risk profile to a trucking fleet of 10 to 20 trucks.
Now, the difference there is, if you have a hundred trucks, your fleet probably has a bit more sophistication than the trucking fleet of 10 to 20, right? And so because of that sophistication, because of those increased economies of scale, you’re able to get better rates and you’re able to get access to these types of programs. And what we’re saying is, Hey, this is not something that should only be made accessible to the large trucking companies. This is something that should be made accessible to your average owner operator, your smaller trucking fleets, right. And we strongly believe that it’s not a matter of making insurance cheaper, but rather it’s making insurance more fair. And from the perspective of the insurance companies, we believe there’s a way to build the business and create this type of offering while still maintaining a profitable business for yourself as the carrier. Right? And so that’s one of the misconceptions here. A lot of insurance companies sit here and think episodic or usage space insurance is just another word for cheaper insurance. And we’re like, no, no, no, no, it’s not. It’s another word for fair insurance. There are cases where, Hey, you might actually need to increase rates, but in many instances you will actually have to lower rates. And that’s not a bad thing. That just means it’s more fair.
So walk us through how this works, you know, if there’s someone listening right now and they say, Hey, this is me. I’ve got 10 trucks or I’ve got 20 trucks. How does it work? Walk us through the process.
Yeah. So the way that we work is if you have a trucking company with 10 trucks, what we are going to do is we are going to charge you a monthly fee of $250 a month. That is flat. It’s a flat fee. Now, as your fleet grows, there is some flexibility on that monthly subscription fee. That’s just a monthly subscription fee that you have to pay per truck, right? So immediately your fixed costs gets reduced tremendously. So that’s number one. Number two is now anytime your truck goes out on the road, let’s say it goes out for a three day job. You’re only paying insurance for those three days. So at the end of the month, if you only used your truck for three days, you’re going to pay the monthly subscription fee and you’re going to pay three days of coverage.
And right now, for most truckers, the rate is typically falling anywhere from $40 to $50 a day. And that includes liability coverage up to 1 million and cargo coverage up to $150,000. Beyond that like $2 million, 5 million in liability coverage that is not something that we are offering currently today. However, that is something that we are working on offering in the next quarter or two. So it is on the product roadmap. It is on the insurance roadmap. It is something that we are actively pursuing and we are actively working on. And our goal is ultimately to get it to a point where our customers have an a la carte menu. So if you’re loading, if you’re, if you’re working for super puffed and they just require $1 million in liability, that’s great. You have the basis there. If all of sudden you get a job opportunity with Amazon or Lowe’s and they’re requiring $2 million in liability.
Well, the beautiful thing about us, what we want to get to is, Hey, you can now add that a la carte to your trip for those three days. So that’s a bit about how we work today. We work with class eight trucks, typically where we see our program is best suited for is class eight trucks working across state lines. One of the things that we do is if you do have, and now intrastate carriers and intrastate truckers are required to use electronic logging devices. If you do use electronic logging devices. In some instances, we will even ask to go ahead and integrate directly with your ELD. And why is that? That just makes things like God forbid you get involved into an accident that just makes the first notice of loss correctly to the carrier, it just makes it much, much easier for us to get.
And one of the things that we always wanna point to is this technology and the technology that we use and having the capability or the ability to tie your ELD is not so that we can try to control you. It’s not so that we can try to spy on you. It’s actually for the benefit of our customers. So one of the interesting things is today, 85% of accidents involving a truck are not caused by the truck driver, they are actually caused by the person driving the normal vehicle, the normal car. However, most of the times the trucker gets blamed. And oftentimes if it goes to court, the trucker typically actually loses the case and the jury sides with the other party. And so when you look at something like forward facing cameras, what’s the beauty in forward facing cameras, the beauty and forward facing cameras.
It’s not necessarily that it can be used to spy on the truckers and see what they’re actually doing. The beauty in forward facing cameras is, Hey, if you get involved in an accident right now, historically, you were going to lose the case. Well guess what? Now we have actual footage, dash cam footage that shows you were not at fault, but instead it was the other party, right? So this is where technology, we use it as a tool to better enable our customers, to better protect our customers. It’s not that we’re trying to be spies or anything like that.
You’ve been listening to The Heavy-Duty Parts Report. Today we’ve been trying to challenge the status quo in the trucking industry. And we’ve been speaking with Michael Vega-Sanz, the co-founder of Lula. To learn more about Lula visit Lulatrucking.com. Michael, thank you for helping us challenge the status quo in the trucking industry by sharing your story and your great product that lowers costs on insurance for trucking companies. I appreciate you being on the show.
Yeah. Thank you so much. I really appreciate it.