By on August 29, 2019

Late Wednesday, Tesla seemingly gave Tesla owners and intenders what they’ve been looking for: an opportunity to lower their insurance premiums. For a number of reasons, mainly high claim frequencies and the cost thereof, Tesla owners often find themselves saddled with sky-high coverage costs.

What if Tesla provided that insurance?

Owners will soon find out the pros and cons of such a setup, as Tesla has now rolled out its promised Tesla Insurance — a product the automaker claims will benefit owners by offering “up to 20% lower rates, and in some cases as much as 30%.”

With coverage offered initially to California residents (no word on when other states come onboard), the Tesla Insurance website went live last night, then promptly went blank. It currently reads “Algorithm update in progress.”

Tesla CEO Elon Musk first floated the concept of Tesla Insurance back in April, with some questioning how the automaker could afford the offering given the price it charges insurance companies for replacement parts.

“Because Tesla knows its vehicles best, Tesla Insurance is able to leverage the advanced technology, safety, and serviceability of our cars to provide insurance at a lower cost,” the automaker wrote in a blog post. “This pricing reflects the benefits of Tesla’s active safety and advanced driver assistance features that come standard on all new Tesla vehicles.”

Not long ago, the Insurance Institute for Highway Safety declared the Tesla Model 3 to be the most expensive 2018 model-year vehicle to insure in the United States. A year earlier, AAA-The Auto Club Group, citing claims data from the Highway Loss Data Institute, said premiums for Tesla vehicles should go up to the tune of 30 percent. French insurer AXA recently claimed electric luxury vehicles are 40 percent more likely to be involved in an accident.

Certainly, Tesla likes to tout its vehicle’s fleet-footedness, and videos continue to appear online of Tesla owners dangerously misusing their vehicle’s semi-autonomous Autopilot feature. Snoozing behind the wheel usually doesn’t lead to lower premiums.

Initially, Tesla might realize a windfall from this gambit, but one wonders what will happen when the unprofitable company has to pay out.

[Image: Tesla]

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24 Comments on “Tesla Rolls Out Insurance Offering, Claims Big Savings...”

  • avatar

    Car insurance isn’t term life insurance. You can’t just cut the profit margin and marketing expense out of underwriting the worst cars and drivers on the road and expect it not to hurt Tesla’s sham of a balance sheet. They make the Change Bank look like a business opportunity. It seems like their focus today is to exist long enough for other car companies to follow them off the EV cliff.

  • avatar

    Me thinks Tesla is overestimating.

    So insurance is the original big data. Sure Tesla has more Data but the stuff that counts (how often Tesla’s crash and how much is costs to fix) they already have. When Tesla was first ramping up I imagine insurance companies played a bit with rates but but now the Data is there. So you say they cut out the profit, but Auto insurance tends to run really close to a 100% combined ratio (it’s a break even) Even the very conservative company I once worked for ran around 95-98%. They make money by investing the premiums in the mean time. Some Insurance is profitable on it’s own (I have seen specialty lines and business insurance with 70-80% combined ratios.) but Auto insurance is really competitive.

    That said with all the cameras and recorders in a Tesla and easy access by the company investigation costs would go down some.

  • avatar

    Based on what I’ve seen on Tweater, they will only insure Teslas, so if you have something else in your fleet you’ll need another provider also.

    I wonder if they offer a combo with home insurance which could be really valuable if you have combustible Tesla Solar City panels on your roof.

  • avatar

    Here’s another reason I think this is more an act of desperation than opportunity. Tesla is going to go from making money overcharging people for repair parts to overcharging themselves for repair parts. Step one is underwear.

  • avatar

    Toyota should do the same, and offer a special policy that only covers the corners of the rear bumper. (Google “Camry dent”)

  • avatar

    And so it begins, the thing many people denied, and I’ve been staying for years. Cars with autonomous capability will have cheaper insurance than manually driven cars.

    As autonomous vehicles slowly take over, the burden of insurance profit will shift more toward the manual car driver, as they’re the ones who still have accidents, those luddites.

    Eventually it’s cost prohibitive to continue manually driving, for all but the wealthy enthusiast.

    Insurance, government, healthcare are happy, fewer deaths and injuries. And most people are also pleased because now they don’t have to drive themselves, and insurance costs less.

    Also, “Tesla Insurance” is a bit of a misnomer. It’s underwritten by someone else (Progressive, etc); it’s just a group discount code only available to a select few.

    • 0 avatar

      …or it could be Elon Musk listening to Voice #221 in his head…

      The question, though, is whether insurance companies not named “Tesla” give vehicles with autonomous driving capabilities a break on premiums. Is that the case?

      (Personally, I don’t think what you’re talking about will happen because I don’t think autonomous vehicles will ever replace self-driven cars in the market. Consumers have a LONG way to go when it comes to accepting this tech.)

      • 0 avatar

        Well, car manufacturers offering insurance is nothing new and other manufacturers have autonomous features. None that I’ve seen offer any discount based on autonomous features being present (probably because they don’t make driving safer).

        For example Mercedes has a ‘connected’ insurance system (in some markets), where you can save money depending on what your records you doing. The car monitors your driving and gives you a ‘Driver Score’, which determines how expensive your insurance is. Mercedes claims savings up to 30% (though just signing up gives you a claimed 10% discount in its own). Your Driver Score is determined by three things:
        -What type of trips you drive
        -What time you drive
        -Your driving style

        Why is there so much hubbub once again about what Tesla is doing, and especially why is this being reported as if it’s some kind of original invention by Elon ‘Snake Oil’ Musk? Well, nothing new: Tesla-cultists have absolutely no idea whatsoever about the automotive industry or automobiles, pretty much everything they learn is from Tesla fan blogs and ‘news sites’ that are as reliable. Everything is news to them and everything is invented by Musk to them.

        I am not criticising TTAC’s reporting on this (though it could’ve included more context and benchmarking but this is aimed at people who know at least a bit about the industry and I’m definitely not complaining about the length of articles on a free media site!). It is relevant reporting to inform about this, and how this is spun by Tesla.

    • 0 avatar

      Actually looking into this. Tesla already had a deal with Liberty Mutual to do their own insurance and has for years. They are claiming they will be the actual insurer on these new policies. I assume they will be re-insured by someone but still it’s interesting.

      As far as the insurance thing well yeah that’s one of the unknowns of autonomous vehicle. Right now the data is still a little shaky on full self driving being that much better then human drivers but I’m sure that will change as time goes on. Once it starts rolling insurance may have to work out a new business model. I imagine manual driving will be insured like classic cars are today. Which means fairly affordable as long as you abide by a bunch of restrictions.

      • 0 avatar

        I’m pretty sure Mercedes has more data than Tesla, and Mercedes doesn’t offer any discounts on insurance for any of their numerous car models with autonomous driving features.

        I have a Mercedes with ‘autonomous driving’ but I had no marketing directed my way, I only found out that the company offers insurance by chance. It’s also not interesting, I didn’t even ask for an offer.

        Has the insurance business ever been profitable for car manufacturers, even those who actually make proper products? I doubt it’s much of a money maker but then again I believe it serves a purpose in other segments than consumer sales. I assume they only sell what suits them well, and they don’t have to go into any unprofitable segments, and therefore they make a nice profit. They don’t have to push it or make it especially cheap (Tesla will have to). They just sell what they want to on the side of their other operations (like insuring their own fleets).

    • 0 avatar

      I agree with this eventual outcome, but it’s going to take years longer than I used to think, and I’m not sure we’re going to see it with anything that looks like current systems.

      Current systems still require full driver attention and it appears many drivers are using them as an excuse to stare at phones instead of driving, increasing both accident and casualty rates. TBH it’s the most likely reason for the increase in roadway fatalities over the last couple of years.

  • avatar

    Now if Tesla cannot deliver parts in a timely manner, how is it that they’ll resolve this and provide superior service to the insurance customer that they are so unwilling to afford outside insured clients?

    More vaporware from a company that spreads itself thin and continues to produce some of the worst quality vehicles you can buy – but because they are Teslas, new owners will forgive this company for having quality like American Motors in the 1970’s. Perhaps Toyoduh should buy this so the whole charade will be complete.

  • avatar

    Broadly speaking, car insurance usually has three components that go into rating.

    1) The base cost which covers rent, keeping the lights on, paying salaries, state mandated reserves, etc.

    2) The acquisition cost which covers marketing, the cost of obtaining driving history reports, etc. (Keep in mind this is an aggregate also: for every policy purchased, there are probably 10 quotes where reports have been purchased but the policy isn’t bound.)

    3) The projected cost of paying claims against a particular coverage type and limit.

    In most states, the DOI gives each insurance company fairly wide latitude in slicing the customer base into aggregate rating groups (tiers) based on age, gender, driving history, CBUS, etc.

    California is one of the few states that disallows much of that fine-grain rating, so in practice everyone’s base rate is derived from the average of a much more general pool of drivers.

    With all that in mind, Tesla may see savings in a few key ways:

    1) By going with an almost entirely web-based model, they greatly reduce physical infrastructure costs.

    2) They’ll barely have to advertise. And because they’re effectively selling to a captive market, I expect their quote to bind ratio to be much more favorable.

    3) Tesla caters to a fairly specific market segment which I expect to have a fairly specific claim profile. I assume this segment has a better loss ratio than the public at large, which would allow Tesla to use that when developing their actuarial analysis.

    I’m curious whether Tesla has spun this up from scratch or whether they’re working with another insurance company to provide the actual product under their brand.

    • 0 avatar

      I suspect the main ploy that Tesla is going for is their customer service model providing almost no expense: just shaft the customers and don’t even answer their calls when they get into an accident. Then after months refuse all claims, blame the customer for everything based on “data gathered by Tesla from the vehicle’s systems but no, you’re not allowed to see that data”.
      Tesla will just take the money and then not provide the actual product they promised (as usual).

      They’ll probably be bankrupt by the time their insurance business tanks from selling the insurance cheaper than they should and the crap products meaning massive bills. This is just to get some more desperate cash.

  • avatar

    As some others have pointed out it seems to be another desperate hail-mary attempt from that sinking ship which was never water tight. Selling insurance is a way to make money on something that pushes all the expense of that ploy into the future. And they probably have to start selling affordable insurance at a huge loss just to make their POS products viable for non-millionaires to buy and use.

  • avatar

    “Algorithm update in progress” – that should become Tesla’s official slogan

  • avatar

    I wonder how they plan to deal with the obvious, multiple conflicts of interest should a claim arise from defective products or software? There would have to be a legal firewall between the insurance operation (yeah sure) and the rest of the company’s management and finance operations.

    • 0 avatar

      Would you really want the company that built your car that just burned to a crisp to insure your car against it burning to a crisp?

      • 0 avatar

        Exactly, there’s probably an arbitration clause in the fine print that says you have to abide by the decisions of an arbitrator — hired by Tesla. Only in Koliphonia would the insurance commissioner allow a screwed-up deal like this to go forward.

  • avatar

    I don’t think that the Elon Insurance Company (sic) is really intended as a profit center but more as a defensive move to protect market share. The concern is that as word of mouth grows about the cost of insuring Teslas spreads that expense will become a decision factor for potential buyers. The great insurance caper is a win for Tesla if it protects sales levels for the corporation, even if the Insurance arm itself loses (some) money.

    Tesla cars are expensive to repair for a couple of reasons – they use a lot of aluminum and many (most) shops are not able or authorized by Tesla to do repairs, especially if there is structural damage. A friend had his Model S totaled because the floor was damaged by a piece of steel flung up from the roadway. The Insurance company couldn’t find a shop willing to guarantee the car’s structural safety after cutting the damaged piece and welding in a new section. The car was functioning perfectly but… Then there’s the fact that even more than other makes, Teslas are built to be easy to assemble, not repair with glued in rear windows, etc.

    Finally, the parts availability problem keeps a lot of damaged Teslas off the road for a long time with the owner’s driving rental cars at insurance company expense, and meanwhile complaining to their insurance agents about having to wait.

    I suspect that some insurance companies are overpricing Tesla coverage on the theory that there are plenty of other fish in the sea that aren’t such headaches. Let Tesla owners go elsewhere while we happily wave goodbye.

    Tesla may be able to coordinate their insurance and repair functions and keep costs down by prioritizing parts to their insured, focusing repair volume on specific shops to grow their expertise and thus reduce costs, and finally by using otherwise unsaleable cars as loaners. I would assume that Tesla will use contracts with other insurance companies for appraisers and other such ‘back room support’.

    It’s an outside the box idea that is definitely worth trying for a few years.

  • avatar

    Presumably the savings comes from selling themselves parts at cost, not having brick-and-mortar locations, and not wasting time on the phone with insurance adjusters arguing that they should be able to steer the customer to Joe Kickback’s Auto Wrecking & Repair.

    I recently saw a true cost of ownership comparison between a mainstream sedan, entry-luxury sedan, and Model 3: IIRC it was Camry LE, Model 3 SR+, and Audi A4 over 5 years. The Tesla’s TCO knocked the teeth out of the Audi and was almost dollar for dollar the same as the much-cheaper-upfront Toyota. But the part that didn’t compute for me was the insurance: whoever did the study seemed to have gotten a much cheaper insurance quote for the Model 3 than I had ever heard of.

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