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Roads diverge for insurers covering Teslas

Auto Club Insurance Association Group has garnered some press attention of late, on account of revising its rating methodology for Teslas. The insurer has requested that regulators allow it to charge more for covering them, in light of data showing higher potential losses from the luxury electric vehicles. But at the same time, telematics startup Root Insurance Co. views the technology in those vehicles as a way to justify charging customers less.

Auto Club, which is one of the underwriters of policies sourced by driver organization AAA, has requested higher rating factors across its entire geographic footprint on the property damage and collision risk from Teslas. While Auto Club wrote private auto in a little over a dozen states in 2016, it did not necessarily cover Teslas in all of those states; for instance, it did not write policies for any in Nebraska as of June 1.

Nebraska is not a huge focus for Auto Club, but Michigan is. Auto Club generated $1.34 billion in private auto direct premiums written in Michigan in 2016, making it the second-largest writer behind State Farm Mutual Automobile Insurance Co. But even in The Wolverine State, Auto Club's two largest underwriting units only insure 77 Teslas combined, based on product filings submitted in May.

In terms of potential dollar impact to Tesla drivers, unit Auto Club Group Insurance Co. provided an estimate. For the 22 Tesla vehicles in its auto program in Michigan, the total impact would be an increase of $6,298, according to a product filing. That comes out to roughly $286 per vehicle.

In general, Teslas are not as ubiquitous as other makes. The company is growing rapidly, but the amount of vehicles Tesla delivered last quarter was around 25,000, compared to roughly 690,000 for General Motors Co.

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When making its decision, the Auto Club group took into consideration a study from the Highway Loss Data Institute, a nonprofit research organization, which showed Teslas having "significantly higher" overall losses, claim frequency and claim severity, when compared to other large luxury cars.

A review of this data shows that the 2013 to 2015 Tesla Model S vehicles the HLDI studied were about 224% worse than average for collision losses, 16% worse for property damage losses and 108% worse for comprehensive coverage losses. Comprehensive coverage refers to insurance against damages to the driver's vehicle from causes other than collision. Of the large luxury group vehicles, the Teslas the HLDI studied were among the worst in terms of collision for model years 2013 to 2015.

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Meanwhile, Root sees reasons for optimism when it comes to Teslas. In a recent product filing, the insurer pointed to a study from the U.S. Department of Transportation showing that Tesla's vehicle crash rate dropped by almost 40% after the cars had Autosteer installed. The Autosteer system provides lane-centering assistance to the driver using information on lane markings and other vehicles. With this in mind, Root offers an Autosteer discount. It is based on the percentage of total miles a driver spends on the highway, with those who spend more time highway driving getting a larger discount. The reason, Root explains, is that Autosteer is designed for use on highways.

Root is able to measure a driver's amount of time on the highway because it started as a telematics company. Root's app turns the user's phone into a telematics device, collecting data that factors into his or her insurance quote. But unlike many other insurance technology startups, it writes its own policies. Root writes through a carrier previously known as Club Insurance Co., which was in runoff prior to being acquired by Root's parent company, IBOD Co. Inc.

In the view of Alex Timm, Root's co-founder and CEO, Tesla's technology could just be the beginning. As assisted driving technology improves, crash rates on those vehicles should continue to fall and with them insurance costs, he indicated in an email response to S&P Global Market Intelligence. "We will continue to embrace the future and continuously reward customers that reduce their risk of getting into an accident — whether that be by driving more safely or through the use of safer technology," he wrote.