Billionaire multitasker Elon Musk has been in the news for his takeover of Twitter, a little utility that is perhaps nice to have but not exactly necessary. Car insurance, on the other hand, is necessary and Musk is also setting out to reform – or perhaps, disrupt – it.
As with all his plans, Musk is thinking big and is “trying to turn a nightmare into a dream with Tesla Insurance,” as he put it during a recent conference call with Wall Street analysts.
Car insurance has been a rather staid, state-regulated utility for more than a century but it is being shaken up by Musk and other entrepreneurs who scoff at its often baffling premium structure and tedious claim processing.
Traditionally, car insurance has been priced using a "black box" procedure: risk data goes in, a premium is spit out. Young drivers with high-powered cars, lots of tickets and an address in an area with lots of traffic and accidents pay more than sedate suburban drivers with sterling records. That's the theory, anyway.
Some newcomers – like Metromile – have begun charging by the mile. Other factors are considered in the rate but the main variable is the number of miles driven per month, as measured by a little device that plugs into a socket under the dash.
Musk is, as usual, taking it a step further: not content to charge you for how far you drive, Musk wants to charge you by how you drive. Since he will only be insuring Teslas, one can assume that he expects his cars to collect enough information about drivers' skills and habits to come up with a premium that more accurately reflects the risk each driver represents.
A key factor in determining premiums for real-time insurance is a Tesla Safety Score—essentially, a score that captures how safely the policyholder drives by monitoring forward collision warnings per 1,000 miles, hard braking, aggressive turning, unsafe following time and forced Autopilot disengagement (a measure of inattentiveness when using Tesla’s Autopilot advanced driver assistance system). - Tesla Insurance
Biggest Tesla insurer ever
Naturally, Musk expects to quickly be not only the best but also the biggest and says that his company will be the largest insurer of Teslas in the state of Texas by the end of the year.
This, by the way, is not an idle boast. Insurance industry experts say that Tesla and other car makers represent a real and growing threat to old-line insurers.
In a report titled, “Tesla’s insurance venture puts incumbents under added pressure to innovate,” Moody’s Investors Service reviews the competitive advantages of Tesla’s insurance business — mainly, the advantage of having data generated by Tesla cars that can monitor driver behavior.
Tesla Insurance is currently offered in eight states. It has a goal of offering insurance to 80 percent of U.S. Tesla owners by the end of 2022.
California is one of the eight states where Tesla Insurance is offered but because of skeptical state regulators, it does not offer rates determined by "real-time driving behavior."
Easier claims experience
In that earnings call, as reported by industry newsletter Insurance Journal, Musk didn't discuss what would be so great about the claims experience beyond saying it would be a "dream."
Most insurance companies have started offering some form of online claim process. Minor accidents can sometimes be largely handled online but more serious crashes, or those involving injuries or fatalities, still involve in-person inspections and interviews.
"With Tesla Insurance, you can submit, manage and track your claims and schedule repairs right from the Tesla app. Open the Tesla app and select your profile picture icon in the top-right corner. Tap ‘Account’ > ‘Insurance' to get started," the company says on its website.
Eight states so far
Since insurance is regulated on the state level, it's a tedious and time-consuming process to put together a nationwide program. Tesla Insurance is so far available in these eight states: