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Latest Tesla insurance offering more evolutionary than 'revolutionary'


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Tesla Inc. made headlines in 2020 for selecting Austin, Texas, as the location for a new gigafactory, but its initiatives in the Lone Star State extend beyond the construction of the massive new manufacturing facility.

The Texas Department of Insurance in December 2020 marked as "closed" or "approved" a series of filings setting the stage for the launch of a new private-passenger auto insurance policy to be distributed by Tesla Insurance Services Inc. and underwritten by a third-party carrier based in Austin.

A review of the documents finds that the new program expands upon an existing offering in California and suggests progress towards Tesla CEO Elon Musk's pledge to build a "major insurance company" fueled by "revolutionary actuaries."

"The purpose of the product is to use the technology in vehicles to lower costs and improve the customer experience through automated underwriting, rating, and claims, including direct data feeds with customer permission, that eliminate frictional costs and inefficiencies inherent in traditional insurance processes," an actuarial memorandum states.

"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 memo adds.

Many major U.S. private auto insurers have implemented telematics devices and applications for those same purposes. That includes State Farm Mutual Automobile Insurance Co., through its Drive Safe and Save program, Allstate Corp.'s Drivewise and, perhaps most prominently, Progressive Corp.'s Snapshot. GEICO Corp., Berkshire Hathaway Inc.'s private auto insurance subsidiary, more recently launched its DriveEasy program.

Drivers of Tesla vehicles face a unique predicament where the cost of coverage may be higher and availability may be lesser than that for competing makes and models. Musk previously indicated that the insurance initiative represented a way to ensure Tesla's customers could obtain "good pricing" for coverage as the company utilizes information arbitrage to more accurately price risk.

Tesla has not revealed specifics about uptake rates for the insurance program in California, which is underwritten on the paper of Markel Corp.'s State National Insurance Co. Inc. and was slated to take effect in 2019. State National's California private auto writings increased to $22.8 million in 2019 from $12.9 million in 2018. More recent line-of-business-level data for the company's activity in that state is not available.

Although the Texas filing indicates that the Tesla program "has already been approved" in California, there appear to be a couple of key differences beyond the third-party underwriter's identity. Most notable is the addition of a safety tier program that makes use of the advanced driver assistance systems in the Tesla Autopilot to gain insights on how the vehicle is being driven.

Whereas the California program as originally filed included an Autopilot discount based on a vehicle's level of autonomy from zero to five across a range of coverages, the Texas program introduces various safety score factors to be applied to qualified vehicles for drivers who opt in.

Working with Milliman Inc., Tesla created a model to identify vehicles that are most and least likely to based on triggers from the applicable safety features. It evaluated, among other things, the number of times the vehicle's lane-departure warning signal was initiated and the distance that the vehicle generally has between itself and the vehicle in front of it in order to determine at-fault collision rates.

Consistent with the California offering, the policy also offers an autonomous vehicle protection package that provides coverage for cyber identity fraud expenses, electronic key replacement, loss or damage to the original wall charger, and for when the vehicle is being driven by autopilot.

The goal, the filing says, is to "enable a technologically advanced customer focused insurance product."

Tesla is partnering on the Texas program with Redpoint County Mutual Insurance Co. Redpoint County Mutual, which generates business from a range of managing general agencies and insurtech companies such as Go Insurance and Cover Financial Inc., wrote $203.8 million in Texas private auto premiums in 2019. The Texas filings note that operations for the Tesla business will be independently managed and directed Redpoint County Mutual's other programs.

Tesla markets its California insurance product on its website and states that owners can benefit from "up to 20% lower rates, and in some cases, as much as 30%." The Texas filing indicates that Tesla has agreed to provide parts to accredited body shops at a discounted rate, which would translate to a 15% lower cost of repair than otherwise would be expected.

"Obviously, somebody does not have to choose our insurance," Musk said during an October 2020 conference call. "But I think a lot of people will. It's going to cost less and be better, so why wouldn't you?"