Tesla May Offer Its Own (Nosy) Car Insurance
Last week, there was another of the occasional Teslas that spontaneously burst into flames, this time parked in a Shanghai garage. Next month, Tesla is likely to offer its own auto insurance. It will save owners money, says Tesla CEO Elon Musk. The only way that’s going to happen is by spying on drivers and their behavior. Tesla will use a more upbeat term such as “informed monitoring.”
Musk believes Tesla owners get a raw deal from some insurance companies. Tesla-sourced insurance could well be cheaper, especially if Tesla has insider information on how Tesla drivers fare as a group, and more specifically which Tesla owners are safer, and which are less safe. The cheapest insurance could come if the owner allowed full-time monitoring of the car’s drivers. Knowing the big brother is watching tends to dampen the enthusiasm of many drivers.
Wednesday, Tesla reported quarterly sales (soft) and earnings (negative to the tune of $702 million). During the analyst Q&A following the Tesla presentation, Musk was asked about Tesla-owned insurance that had been hinted at the past month. Tesla said there will be such a policy, launching in May or June, with the potential to save owners money. As does, of course, every insurance company that advertises on TV. Sounding almost like the president talking about a wall, Musk said, “It will be much more compelling than anything else out there.” Musk did not say, however, how beautiful it will be.
How will Tesla pull it off? The biggest savings come if you spy on — sorry, monitor — the driver. Tesla has used the term “informed Autopilot” to describe the data stream. First, when Autopilot is driving, the driver isn’t, and that’s arguably safer. With Tesla’s current autonomy, it’s Level 2, same as a dozen other car companies, albeit with bells and whistles such as automatic lane changes that Tesla touts. That arguably makes the car safer because the car doesn’t get distracted or drowsy. There will be instances where the car will need driver assistance, such as cut-ins that the driver’s peripheral vision picks up before the car’s straight-ahead-facing radar sees.
The bigger win for safety and for lower insurance, if not for driver independence, is if the car tracks what the driver is doing relative to:
- 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
All of these paint a picture drivers may not like. Not because the information is inaccurate, but because it might paint an altogether too-accurate image of the driver. Tesla wouldn’t have to use all these data types to get the picture. High-intensity, in-your-face driver monitoring has been used as a way to allow drivers with DUI convictions to drive to and from work, or as a last resort for drivers with enough points to either lose their licenses or pay insurance so high they couldn’t afford to drive. Monitored driving allows bad drivers to keep driving in at least some situations, and it lowers the rates for those with good driving records. Some research has shown that once drivers’ freewheeling instincts are muzzled for a period, the driver continues to be less aggressive even without ongoing monitoring.
Tesla could apply some of these “informed learnings” to its insurance rates. It could also — this is only a possibility — ask drivers to choose one of, say, three levels of monitoring intensity in exchange for one of three reduced insurance rates. During the analyst call, Musk said there’s an “information arbitrage opportunity, in which we have great knowledge of the risk profile of the customers.”
According to the ValuePenguin site, annual insurance costs for a Model 3 average $1,913; for a Model X (90D), $2,473; and for the Model S (90D), $2,963. Collision insurance is 57-65 percent of the total cost. It isn’t necessarily that Tesla drivers are bad boys and that’s why insurance is high. Instead, the aluminum components cost more to repair and straighten than a steel frame or unibody, and they’re typically repaired at a limited number of Tesla-approved body shops with specialized equipment.
Tesla currently partners with Liberty Mutual on a Tesla-favored, Liberty Mutual-serviced policy called InsureMyTesla. It’s not clear if Tesla’s new insurance program would be run by Tesla or farmed out to a company already in the business, with a claims staff dedicated to Tesla owners.
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