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Tesla, led by high-profile billionaire Elon Musk, not only wants to manufacture your electric vehicle but it also wants to sell you the insurance for it.
Austin, Texas-based Tesla is offering auto insurance in Arizona, California, Colorado, Illinois, Ohio, Oregon, Texas and Virginia. In Colorado, Oregon and Virginia, Tesla insurance policies are underwritten by Tesla General Insurance for the first time, as opposed to partner companies in other states.
Tesla has also started to make filings with state regulators in Nevada to offer auto insurance there, with an effective date of June 16, 2022.
Tesla previously filed paperwork with state regulators in Washington state, but has not announced insurance sales there.
During a Tesla earnings call back in October 2020, Musk said insurance someday could represent 30% to 40% of Tesla’s auto business. He boasted that Tesla is building “a major insurance company.”
Zachary Kirkhorn, Tesla’s chief financial officer, has said the company will eventually roll out auto insurance nationwide. On a Tesla earnings call in January 2022, Kirkhorn said the current goal is to be in enough locations that, by the end of this year, 80% of Tesla U.S. customers can buy their auto insurance from Tesla.
In Tesla’s earnings call in April 2022, Kirkhorn said that Tesla is the second-largest insurer of Teslas in Texas.
Tesla’s auto insurance is tied directly to a Tesla vehicle, enabling the company to assess a customer’s risk based on actual driving behavior and then set monthly premiums accordingly. This is generally known as usage-based insurance. Tesla says its rate calculations do not use other factors typically used by other insurers such as age, driving record and credit.
Also in the April 2022 earnings call, Musk observed that “I noticed that we are seeing that having real-time feedback for driving habits is actually resulting in Tesla owners driving the cars in a safer way because they can see the—they get real-time feedback on, ‘Okay, this is affecting my insurance rate,’ or it isn’t. And so when people see—they can see their real-time score, they realize, ‘If I make compelling changes in my driving habits, then I pay less in insurance.’”
Tesla insurance calculates a safety score between 0 and 100 based on actual driving. You can see your own score via the Tesla app so you’ll know if there’s room for improvement.
California regulations do not yet allow the safety score. Musk said on the January 2022 earnings call that they are “pushing very hard for California to change the rules to allow informatics, which basically means that you’re as safe as you’re driving is measured.”
Can Tesla Remake Auto Insurance?
“Obviously, somebody does not have to choose our insurance. But I think a lot of people will. It’s going to cost less and be better,” Musk has claimed.
The company says its “competitively priced” premiums can deliver savings of 20% to 30%. For the average driver who’s getting a Tesla safety score, the savings can run between 20% to 40%, and for the safest drivers, Tesla says the savings could be 30% to 60%. Based on filings made to state regulators, Tesla may try to achieve these savings by planting itself firmly in a digital experience and reducing costs associated with traditional auto insurance sales and service.
Tesla intends 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,” according to a regulatory filing in Texas. “The digital approach to purchasing insurance by the consumer will streamline and enhance user experience throughout the policy lifecycle; beginning with the quote through online bind, renewal, and in the event of a claim.”
Tesla Insurance Coverage
Tesla’s insurance provides the basic coverage types you’d expect, such as liability, collision, comprehensive and uninsured motorist coverage. Optional coverage also available in most states include:
An “Electric Vehicle Protection Package” includes coverage for:
- Tesla wall charger
- Tesla electronic key replacement
Tesla Insurance Discounts
Discounts available from Tesla insurance can vary a bit by state, but in general include:
- Multi-car discount for insuring more than one car on your policy.
- Autopilot discount based on the autonomy level of the vehicle.
- Defensive driving or mature driver improvement course discount. Rules vary by state but this typically applies to drivers age 55 and older who complete an approved class.
In addition, there is a safety program discount based on your driving behavior. The five main safety factors looked at are:
- Forward collision warning per 1,000 miles
- Hard braking
- Aggressive turning
- Unsafe following
- Forced autopilot disengagement
California laws don’t allow for a usage-based safety program discount, so these other car insurance discounts are offered for California drivers with Tesla insurance:
- Elite good driver discount (if you have no surcharged accidents or violations in the last five years and other eligibility requirements). Possible discount of up to 30%.
- Good drivers (as defined by the California Insurance Code) can receive a 20% discount.
A “Viable Long-Term Threat”?
Tom Super, vice president of insurance intelligence at market research company J.D. Power, said Tesla’s insurance offering “could represent a viable long-term threat” to auto insurance powerhouses like Allstate, Geico, Progressive and State Farm.
“This will largely be determined by how quickly their vehicles penetrate the market and begin to make up a significant portion of vehicles on the road,” Super said. “In the near term, however, Tesla’s entry into the auto insurance market will have limited impact on the average auto insurance consumer, including the premiums they pay.”
Bob Hunter, director of insurance at the Consumer Federation of America, agrees that Tesla’s insurance would have little competitive effect overall—at least for now—on insurance premiums.
Tesla is among several automakers “getting their feet wet” in auto insurance, Hunter notes. For instance, GM offers OnStar-branded insurance.
GM says its auto insurance will be available for vehicles that are and are not equipped with the OnStar communication system. However, discounts of up to 20% are not available for vehicles without the OnStar service. As with Tesla, GM allows policyholders to voluntarily share data that may help drive down premiums, such as data that gauges driving behavior.
Toyota also is involved in the insurance business, through its Toyota Insurance Management Solutions insurance agency. Toyota’s insurance partners—National General, Nationwide, Safeco and Travelers—issue the automaker’s policies in 43 states. Toyota Insurance Management Solutions lets policyholders opt in to share driving data, such as how fast and how much a motorist drives, to potentially reap savings on premiums.
Judged by vehicle sales, GM and Toyota are much bigger players in auto insurance than Tesla. In 2021, Tesla sold over 900,000 vehicles. By comparison, GM sold more than 2.2 million vehicles that year, while Toyota sold more than 2.3 million vehicles in the U.S.
In an article on its website, consulting firm Milliman describes competition in the car insurance industry as “fierce.”
“The competition for car insurance premium is fierce,” Milliman says. “Not only are car insurers competing against each other, but now they are also faced with an external-to-the-insurance-industry threat from car manufacturers. As car manufacturers and car insurers gain more vehicle data, the most innovative are in the best position to lower car insurance premiums and gain customers.”
Best Car Insurance Companies 2022
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