The article opens up with praise as to how Elon Musk and Tesla have “fascinated the world,” with products such as the Tesla Model 3 and Tesla Cybertruck (reservation holders, represent!), but the article also cites the fact that one product has been overlooked/under-acknowledged, a “hugely important one.”
“Tesla and Elon Musk have not just added another revenue stream to their many successful endeavors. They are also helping to fundamentally change the way that we interact with insurance providers. In the future, insurers will be more like a partner on our journey both by car and on foot — both on Earth and beyond.” —Fast Company
Insurance companies make money from two sources: Premiums collected from their customers and earnings from investing a small portion of those premiums. They invest after all claims are paid and all of their overhead costs are paid. A typical insurance provider can earn a good profit if it is able to invest as low as 5 cents on every premium dollar collected.
In 2019 alone, the total revenue that insurances companies earned was around $285 billion, according to IBIS World, which compiled data that showed the annual growth of the US auto insurance industry from 2014 through 2019. That growth rate was 3.3%. Tesla is joining another industry that is one of the largest in the world, and if we know Elon Musk and Tesla, the company will probably change this industry for the better as well. There are various ways Tesla could improve insurance service and cut costs. (For example, Tesla can provide lower rates for customers who have “Full Self Driving.”)
Tesla Insurance? With the data @elonmusk is gathering, this could be his biggest money maker yet. I would hope the well behaved driving consumers benefit. @Tesla @2RoadsPro @FastCompany Thx for article! https://t.co/EyacEMXJBF
— Barry Vince (@barryv31) February 4, 2020
Currently, Tesla’s insurance is only available for Tesla vehicles in California, but it hopes to branch out into other states and eventually the world. I am hoping it will be available when I take delivery of my Cybertruck. Due to Louisiana’s insane insurance policies, Louisiana has one of the highest auto insurance rates in the country, with an average of $2,225 per year, which is 55.9% more than the US average.
One of the perks for Tesla from selling insurance is that the company has current — even real-time — data from all of its drivers’ driving behaviors, and the performances of the vehicles they are driving. This includes the technology, camera recordings, and sensor readings, which can allow Tesla to estimate the risk of an accident and also estimate repair costs as accurately and as quickly as possible.
Usually, when one is in an accident, their insurance company has to investigate all aspects of it. This can take up a lot of time, though. With Tesla, the company already has access to key data that it can review. Insurance premiums for Tesla Insurance are reportedly 20% to 30% lower than for its rivals. These premiums are calculated with aggregated anonymous data.
Why is Tesla selling car insurance? 🚗
— Loughborough University (@lborouniversity) February 4, 2020
The author of the article referenced above, Alex Zarifis, evaluated 32 insurance providers around the globe, including Tesla. He discovered that AI, big data, and a few other tech influences were all rewiring insurance. In other words, the work of the insurer is changing hands from local human expert underwriters to automation that is driven by big data and AI.
3 Benefits of Tesla Insurance
Zarifis breaks this down into a short-term and long-term scenario for what it means for drivers. In the short term, Tesla drivers will have insurance that is more seamless and convenient. It will most likely be lower priced than insurance from Tesla’s competitors. In the long run, the insurance industry will be driven by real-time data and most likely will change our behavior for the better.