Tesla is creating its own branded insurance program, a move the electric-car maker believes will enable it to offer a lower-cost product to drivers, the Wall Street Journal informs.
Tesla Chief Executive Elon Musk has been working with a unit of Virginia-based Markel and another company, which hasn’t been named, to offer the branded insurance, according to Markel and regulatory insurance filings in California, where Tesla is based.
Revealing the program’s existence in an earnings call last month, Mr. Musk said the goal was to more accurately take into account the safety benefits of the cars’ Autopilot driver-assistance system. Tesla says it has far better data on the performance of its vehicles and their drivers than other insurers do, and believes it can use this information to offer customers lower-cost insurance, according to the California filings.
In the call, Musk said buyers would have “to agree to not drive the car in a crazy way.” If they do, their insurance rates would be higher, he said. He said he hoped to launch the insurance offering within a month, the Journal writes.
It couldn’t be determined how the program would coexist or compare with an arrangement in place since 2017 with Liberty Mutual Insurance, called InsureMyTesla. That program is promoted as “a comprehensive insurance plan developed in cooperation with” Liberty Mutual.
The amount Americans pay for car insurance varies widely and is determined by factors including age, gender, driving history and even where the car is garaged. Some insurers offer discounts on car premiums in order to insure other possessions, such as additional vehicles and multiple homes, people in the industry told the Journal.
A 2019 report from QuinStreet unit Insure.com – a consumer insurance information website – ranked the Tesla Model S as the 15th most expensive car to insure in the country, with an average annual insurance paid of $3,300. The Nissan GT-R was the most expensive at $3,941. Numerous BMW and Mercedes models ranked ahead of the Tesla vehicle.
Industry consultants and academics said Tesla’s plans point to inevitable change in the car-insurance world, as traditional carriers face possible downward pressure on rates if self-driving features help to prevent car wrecks. Car insurers could experience steep drops in premium volumes, and thus their profits, in the next couple of decades, consultants and analysts say.
Currently, 94% of wrecks are attributable to driver error, but in 15 to 20 years, if technology delivers as expected, “auto claim frequencies will be radically reduced, even if claim costs continue to rise,” said Robert Hartwig, director of the Risk and Uncertainty Management Center at the University of South Carolina’s Darla Moore School of Business. Vehicles loaded with expensive sensors and other safety gear are typically much more costly to repair.
Last year, car insurers collected $246 billion in premiums, according to S&P Global Market Intelligence. Such payments accounted for 36% of all premiums for the property-casualty insurance industry.