For Tesla, Telematics Provides a Battery of Information for Insurance
Automaker Tesla has ventured into the world of insurance, a move that CEO Elon Musk believes has become a “quite significant” part of Tesla’s makeup.
- Anthony Bellano
- October 2022
PRODUCTION SITE: Tesla’s Fremont Factory is the hub for Model S, Model 3, Model X and Model Y production. The Fremont Factory is also one of the largest manufacturing sites in California, according to the company. (Photo courtesy of Tesla, Inc.)
- What’s Happening: Tesla not only offers insurance for its automobiles, but in 10 of the 11 states where it has a presence, its insurance rates are based on Tesla’s real-time driving product.
- Perspective: Tesla was ranked 10th among all U.S. auto manufacturers for the second quarter of 2022, selling 118,700 cars while General Motors topped that list with more than 575,000 cars sold, according to auto sales and statistics website goodcarbadcar.net.
- State of the Business: Despite recording a net loss of $207 million for the first quarter of the year, Tesla Insurance says it is the No. 2 insurer of Teslas in Texas.
Tesla Chief Executive Officer Elon Musk has often found a different way to do things, whether it's innovations involving electric cars or changing the dynamics of space exploration through SpaceX.
To the billionaire, the world of insurance is no different.
Unlike many of its fossil-fuel-driven competitors, Tesla not only offers insurance for its automobiles in the United States, but in 10 of the 11 states in which it has a presence, the electric-car company's insurance rates are based on Tesla's real-time driving product.
And it is translating into success in Texas, the first state where Tesla ventured into the insurance industry. During a first-quarter conference earnings call, executives said that Tesla was the second-largest insurer of Teslas in the Lone Star State. “The customer reception to this has been quite positive,” Tesla Chief Financial Officer Zach Kirkhorn said in the call.
When Tesla entered the market, Redpoint County Mutual Insurance Co. handled the company's underwriting in Texas. Recently, Tesla acquired inactive California insurance company Balboa Insurance Co. and its subsidiaries, Meritplan Insurance Co. and Phoenix-based Newport Insurance Co. All companies changed their names to Tesla Insurance Co. in the first quarter of the year, according to a filing with the California Department of Insurance. Balboa had been licensed to operate in 49 states and several territories, and also operated on a surplus-line or nonadmitted basis in Louisiana, according to a Best's Credit Report.
Tesla offers its own insurance in some form for Model S, Model 3, Model X and Model Y owners in Texas, California, Oregon, Virginia, Arizona, Colorado, Illinois, Maryland, Nevada, Ohio and Utah.
During their first-quarter call, executives said they were working to ensure that 80% of Tesla customers had access to their insurance product by the end of the year in the United States, before exploring the possibilities for international expansion.
As for the company's financials, Tesla Insurance Group had a net loss of $207 million, according to Tesla's financial statements for the first quarter of 2022. At the end of 2021, it had a loss of $275 million, after recording net income of $73 million in 2020. Its total admitted assets for the first quarter of this year were $27.3 million, compared with $47.4 million for the same period in 2021.
In many cases, policies are underwritten by Tesla General Insurance, with the program being distributed through the digital insurtech platform from Tesla Insurance Services. In all of those states except California, Tesla uses telematics to set the rates.
“If you drive the car in a safer way you actually have lower insurance,” Musk said via a remote connection to the All-In Summit conference, which was held in Miami in May. “Our insurance is based on how you actually drive, not how historically people that fit your order of demographic have driven. Then you can close the loop around your insurance rate by simply driving better and looking at your score and lowering your insurance in real time. People do it. It actually promotes safer driving.” He told participants in that conference that insurance is a “quite significant” part of Tesla's makeup.
“Elon Musk felt that insurance for Tesla cars was priced higher than it should be. He believes that he has the data on the way these cars are constructed, and more importantly, data on how these vehicles are being driven to potentially price the risks better.”
“Elon Musk felt that insurance for Tesla cars was priced higher than it should be. He believes that he has the data on the way these cars are constructed, and more importantly, data on how these vehicles are being driven to potentially price the risks better,” AM Best Associate Director Edin Imsirovic said. “It's really a trend about the generation of this data and the leveraging of it to potentially better price the risk and the premium rates.”
Tesla uses features in the car to evaluate driving based on behavior, so that drivers don't need to buy an extra device to put in their cars. Those rates are based on where they live, what they drive, how far they drive and what coverage they select. On its website, Tesla says the average driver could save between 20% and 40% on auto insurance coverage and the safest drivers could save between 30% and 60%.
Because each state has a different set of regulations, Tesla has to tweak its software to meet each individual state's standards. However, California doesn't even allow for the use of telematics, which led to a public Twitter spat between Musk and California Insurance Commissioner Ricardo Lara earlier this year.
In a conference call late last year, Musk called California's rules “contrary to the best interest of the consumers in California,” and said they needed to be changed. Lara responded by saying California's rules protect consumer privacy and data, and offer rates, to which Musk said, “you should be voted out of office.” Tesla recently began letting people who buy Teslas in California use their driver safety score “for educational purposes.”
Tesla is working to ensure that
of Tesla customers had access to its insurance product by the end of the year in the United States.
Source: Tesla Inc.
“When people can see a real-time score, they realize, oh, if I make the following changes in my driving habits, then I pay less in insurance, then they have like a real-time feedback loop for safer driving and an incentive to do so,” Musk said in Tesla's first-quarter earnings call. “So actually what we're seeing is it is causing people to drive their cars in a safer manner, which is also a net good.”
Kirkhorn said their drivers are seeing lower premiums. “We have extremely high retention for customers who experience the product,” he said. “This has become a real passion program for us for these benefits. It's bigger than just the economics. We're trying to do a good thing here for our customers, save people money and make the roads a little bit safer.”
When there are accidents, Tesla handles all its claims in-house and uses its own collision centers for repairs. “Basically, the customer experience is just vastly better because if there's an accident, there's no argument. We repair it immediately,” Musk said in Tesla's first-quarter earnings call. “And this is as compared to arguing with an insurance company, and then a claims adjuster, and then a collision repair center.”
A study conducted by the Highway Loss Data Institute found that total loss rates and the percentage of claim dollars paid for total losses were mostly lower for the Teslas than for comparable conventional vehicles of the same size, class and model year. The average collision loss payments, payments for total losses, and salvage recovery amounts for the Tesla vehicles also were generally higher than those of comparable conventional vehicles.
The study was conducted from 2016 to 2019, and in most of those years, the Tesla Model S and Model 3 had average salvage recovery amounts around twice as high as comparison vehicles of the same model years, while the Model X was only about 20% higher.
The company's entrance into the insurance market has coincided with its continued growth. Tesla's share of the total U.S. auto market exceeded 2% in the summer of 2021, peaking at 2.59% in September 2021, according to German data company Statista. In 2021, Tesla delivered more than 935,000 cars worldwide, the highest number of cars since 2016 and more than double what was sold in 2020, according to Statista.
According to auto sales and statistics website goodcarbadcar.net, Tesla was 10th among all U.S. auto manufacturers for the second quarter of 2022, selling 118,700 cars. General Motors topped that list with more than 575,000 cars sold, while Toyota, Ford and Stellantis all sold more than 400,000 cars.