Elon Musk made headlines last week when he declared Tesla would start offering “its own” insurance to customers in as little as 30 days. It may have blown up your timeline, but the writing has been on the wall for some time now. In fact, it’s something I mentioned 10 months ago, in this TechCrunch piece:
“Now, companies like Apple and Google and Amazon are eyeing innovation across the insurance landscape… [while] Tesla is developing an insurance product specific to the Model S.”
Now, finally, Tesla’s insurance play is coming.
After selling vehicles with embedded software for 7+ years, Tesla arguably has more driving data than any other company on the planet. While insurers have been trying to collect driver analytics through telematics programs, Tesla’s data collection is like telematics on steroids. Not only do they have a larger quantity of information, but superior quality too.
In terms of driver behavior, Tesla can monitor almost every behavior related to risky driving. Bill Howard from ExtremeTech has built a nice list of what these rating variables might comprise:
- “Speed limit
- Following distance
- Staying within the lanes
- Two-lane-highway passing
- Fast starts and stops
- Aggressive cornering
- Driver alertness (measurable through steering wheel movement or eye tracking)
- Day-of-week and time-of-day driving. Lots of Friday- and Saturday-after-dark driving is more hazardous.
- Horn usage
- Even infotainment volume”
Not only can Tesla collect extraordinarily detailed information on driving behavior, but their cars can also collect ‘driving environment’ data around specific routes, road condition, and traffic thanks to their Autopilot effort, which has logged 1B+ miles and counting.
Elon the backseat driver
All of this data opens the door to what insurers have been dreaming of for decades: true risk mitigation. Not only will Tesla have a superior understanding around driver risk and policy pricing, but they can nudge the driver towards taking safer actions. They can even dangle credits in exchange for specific behavioral changes.
But what if Elon takes it a step further? Tesla’s software already controls the vehicle in Autopilot mode — but they could easily extend some of that safe driving behavior to manual driving as well. Tesla could simply roll out an over-the-air update that installs a governor on your vehicle, preventing you from taking outright risks like, say, going 30 mph over the speed limit.
Given Elon’s penchant for features like Ludicrous Mode, this is very unlikely. Still, things might change when claims pile up. Cashflow and profitability run the Street and the $TSLA stock price. Claims could easily take a bite out of those metrics. So if Tesla gets policy pricing wrong, an insurance product may start looking like a really bad idea. Then, they’ll feel the pressure to either sunset the product or influence their drivers more directly via more heavy-handed risk mitigation.
The biggest question mark surrounds the structure Tesla will pursue to bring this new offering to market. In my 2019 insurtech predictions, I suggested the possibility that Tesla partners with an upstart insurtech like Metromile:
“What if Tesla forms a deep partnership with an insurtech like Metromile, and snubs traditional carriers after poor reviews of Liberty Mutual’s ‘Insure My Tesla’ plan?”
All we know so far is that fronting agent State National filed the application for a new product called Tesla Program, and got approval in California as of April 9. What mechanism does Tesla plan to use long term to provide its insurance? Standing up a standalone insurance company to write risk directly is both cumbersome and extremely unlikely. It’s hard to imagine Tesla backing this level of risk given their balance sheet. They may, however, look to build their own Managing General Agent (MGA), in partnership with a re/insurer, which would give them more direct pricing power, while having an appropriate backstop. MGAs have been a great tool for insurance innovation over the last few years, and this seems like a real possibility.
A partnership, on the other hand, would provide Tesla with greater access to claims data –– which they may have far less of. Claims data is key to generating upfront policy pricing and, without it, Tesla may run the risk of underpricing –– which would be a dangerous mistake for them to make.
I’m looking forward to seeing which direction Elon Musk decides to go. Luckily, we only need to wait a few weeks before learning more. Then, it’ll be up to Tesla drivers to decide whether or not they want Elon watching their every move.