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Tesla is on the verge of launching its own insurance product for Tesla owners that Chief Executive Elon Musk says will be “much more compelling than anything else out there.”
A study from 2017 suggested that Tesla owners pay higher than average premiums due to higher-than-average claim rates and repair costs. Tesla challenged the study’s accuracy. Still, Musk has challenged insurers to offer more incentives for Tesla owners. To that end, Tesla has launched its own branded insurance programs, underwritten by insurers in the U.S., Canada, Australia and Hong Kong.
Tesla’s new insurance product in the U.S. could launch in a matter of weeks.
A Premium Problem
The insurance industry hasn’t been particularly kind to Tesla. Musk has previously taken issue with the insurance industry’s handling of Tesla vehicles, like insurer AAA raising rates on Tesla vehicles in some markets, citing high claim frequencies and costs. Owners have steadily complained about premium prices for their high-priced electric vehicles. To attempt to offer owners some relief, Tesla partnered in 2017 with Liberty Mutual Insurance for plans specifically designed for its electric cars.
Still, rates received public criticism.
“What’s the point of ‘insure my Tesla’ through Liberty Mutual if their rates are almost double all their competitors?” a Twitter user asked Musk.
“Looking into this,” Musk replied. “Will fix if so.”
Looking into this. Will fix if so.
— Elon Musk (@elonmusk) July 2, 2018
Tens months later, it seems Musk has his fix ready with a foray into selling Tesla’s own auto insurance product.
The Tesla Private Passenger Auto Program
A filing with the California Department of Insurance says Tesla’s new offering will be fronted by State National Insurance Company, Inc.
The Tesla Private Passenger Auto program will offer “…private insurance policies for autos with Advanced Driver Assistance Systems (ADAS) in the State of California.’”
The filing was approved by the agency on April 9.
It Pays to Autopilot
A notable feature of Tesla’s insurance plan is the possibility of discounts for drivers using Autopilot. “Vehicles equipped with an autonomous feature option will be eligible for credits based on the level of autonomy of the vehicle,” according to the filing.
So, the less the human drives, the less they pay for insurance.
Tesla’s filing with the state of California includes a document on a “Proposed Autonomous Vehicle Protection Package Premium” that provides coverage when car is being driven by autopilot rather than driver. “The exposure for autopilot level 0 is the base in the policy, which means there are no autonomous features on the car,” the document says. “It is assumed that the expected loss cost will not increase, but decrease using autonomous driver assist safety features, and the existing loss cost will shift from existing driver liability coverages to autonomous vehicle owner liability, so no additional exposure or premium is assumed for autonomous vehicle owners liability coverage.”
Other plans have also given discounts for Autopilot.
Britain’s largest motor insurer Direct Line said in December 2017 it would offer Tesla drivers in Britain a 5 percent discount for using Autopilot.
“At present the driver is firmly in charge so it’s just like insuring other cars, but it does offer Direct Line a great opportunity to learn and prepare for the future,” said Dan Freedman, Head of Motor Development at Direct Line, said in a release.
A U.S.-based start-up insurance company called Root announced a similar offer in 2017. A company blog post said:
Why a discount for Tesla cars? It’s simple: they crash less. According to a recent report from the National Highway Traffic Safety Administration, the crash rate of Tesla vehicles plummeted almost 40% after Autosteer (Tesla’s “self-driving” software) became available.
A 40% decrease. That’s significant. Root believes that falling crash rates means the car insurance industry should adjust rates in response.
Tesla’s Q1 2019 Vehicle Safety Report said its vehicles were involved in one accident per 2.87 million miles driven on Autopilot, compared to one accident every 1.76 million miles driven in Q1 without the feature.
“By comparison, NHTSA’s most recent data shows that in the United States there is an automobile crash every 436,000 miles,” the Q1 report said.
Tesla started releasing safety data in 2018 to give consumers more insight into the performance of its self-driving system.
And, speaking of data, Tesla intends to use a load of it to monitor drivers using its insurance product.
Crazy Driver Profiles
In its filing for Tesla, State National explains how the program leverages Tesla technology to benefit the customer.
“The purpose of the product is to use Tesla’s proprietary technology to lower costs and improve the customer experience by embedded technology to support the underwriting, rating, claims, repair, and product manufacturing network, including direct data feeds with customer permission, when required, that eliminate frictional costs and inefficiencies inherent in traditional insurance processes,” the filing says.
The technology enables State National to pass “the savings yielded directly to the customer while simultaneously improving the customer service experience.”
“The use of vehicle and consumer data, with the consumer’s affirmative consent, will allow for lower costs to acquire and service the policyholder,” the filing says. “Additionally, data from the vehicle, when in the autonomous mode will decrease the frequency and severity of collision claims for Tesla owners. This will afford State National the opportunity to offer the consumer a lower cost insurance product based on these decreased collision costs.”
Speaking about the insurance product during Teslas recent earnings call, Musk acknowledged that Tesla has “direct knowledge of the risk profile of customers based on the car,” creating an “arbitrage opportunity” based on the customer risk profile.
Musk said Tesla insurance customers “have to agree to not drive the car in a crazy way,” or, “they can, but then the insurance rate is higher.”