Tesla’s Personal Auto Insurance Offering
$Tesla(TSLA.US$ Tesla first introduced personal auto insurance in California in 2019 through State National Insurance. More recently, the company took the next step forward in its insurance journey by offering personal auto insurance in Texas through the underwriting company Redpoint County Mutual Insurance. It's important to note that Tesla isn't an underwriting company, it is partnering with underwriting companies to offer its product under the Tesla Insurance name.
The premium is determined based on what vehicle you drive, your provided address, how much you drive, and what coverage you select. The company is not using traditional variables like credit, age, gender, and claim history to price their insurance. With Texas, Tesla also introduced their UBI program called the Safety Score as an additional factor in determining premium.
The Safety Score is based on driving behavior and assigns the driver a score from 0 to 100 based on five safety factors:
1. Forward Collision Warnings per 1,000 Miles: Audible and visual alerts provided to the driver in situations where a possible collision could occur due to an object in front of the vehicle. Maintaining a safe distance and paying attention to the traffic around you helps improve your score.
2. Hard Braking*: Defined as a decrease in the vehicle’s speed larger than 6.7 mph, in one second. Despite the definition, I think we all know what hard braking is. The Safety score can be improved by engaging the brake pedal early when slowing down, coming to a stop, or reacting to a change in the environment.
3. Aggressive Turning*: Defined as an increase in vehicle’s speed to the left/right greater than 8.9 mph, in one second. Again, we all know aggressive turning when we see it. The Safety Score can be improved by turning, changing lanes, or rounding a corner gradually instead of aggressively.
4. Unsafe Following*: Tesla vehicles measure their own speed, the speed of the vehicle in front of them and the distance between the two vehicles. Based on these measurements, Tesla calculates Headway, or the number of seconds you would have to react and stop if the vehicle in front of you came to a sudden stop. Unsafe following is the proportion of time where your vehicle’s headway is less than 1.0 seconds relative to the time that your vehicle’s headway is less than 3.0 seconds. Unsafe following is only measured when your vehicle is traveling at least 50 mph. The Safety Score can be improved by not tailgating or driving close to the vehicle in front of you so you have enough time to react.
5. Forced Autopilot Disengagement: If you remove your hands from the steering wheel during Autopilot, an audio and visual warning is sent to the driver. Three of these warnings result in Autopilot system disengagement for the remainder of a trip.
*Not factored into the Safety Score formula when on Autopilot
These factors are measured directly by the Tesla models using various sensors on the vehicle and Autopilot software. Although this is a significant step forward in Tesla’s insurance journey, The Safety Score isn’t something that’s new.
Many major U.S personal auto insurers have introduced optional UBI programs that assign a score to the driver. Nonetheless, there are a couple of meaningful items that differentiate Tesla.
Some of the factors introduced by Tesla in Texas are different to what other insurance carriers have. For example, Progressive doesn’t have forward collision warnings or unsafe following as factors. On the other hand, Progressive includes late night driving and driving less overall as factors within their UBI program. Tesla is likely to introduce new factors and tweak existing factors within the Safety Score as more data becomes available.
Unlike other major carriers, Tesla doesn't require and additional device to be installed in the vehicle to capture driving behavior. Tesla uses specific features within the vehicle to evaluate premium based on actual driving.
The Safety Score is updated daily to provide real-time feedback on driving safety. The daily Safety Scores are combined (up to 30 days) to provide a premium based on the months’ driving activity. Below is an example of how the premium could change based on the score by month. Traditional insurance carriers don’t offer daily updates and change in premiums by month. Instead, it’s typical to have a monitoring period of 6 months before receiving a score and change in premium.
Based on the introduction of the Safety Score and partnership with Repoint Insurance, Tesla Insurance is the cheapest option for full coverage in Texas.
Lastly, and most importantly, the company will be able to leverage first party data to predict collision frequency due to the technology within Tesla cars. Other insurance carriers will likely have to partner with different manufacturers to capture data within cars at the point of sale, Tesla already has first party data.
CFO, Zachary Kirkhorn, explained:
At Tesla, because our cars are connected, because they are essentially computers on wheels, there's enormous amounts of data that we have available to us to be able to assess the attributes of a driver who's operating that car, and whether those attributes correlate with safety.
We've been able to go back and analyze that data and we've learned 2 things coming from that. The first is that the probability of collision for a customer using safety score versus not is 30% lower. That's a pretty big difference.
It means that the product is working and customers are responding to it. The second thing that we've looked at is what is the probability of collision based upon actual data as a function of a driver safety score. And that is aligning with our models. Most notably, if you're in the top tier of safety compared to lower tiers, there's multiplex difference in probability of collision based upon actual data.
Tesla is looking at hundreds of different variables and billions of miles of driving history to predict loss frequency and price each risk individually. The dataset will continue to grow and get better as Tesla sells more cars and as people drive more. Tesla is planning to launch personal auto insurance in every major market in which they have cars.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Teddy Willson : So after 2 years Tesla manages to add it's second state (and lets be honest, we know why it's Texas and it's nothing to do with making money from insurance), so only another 98 years for the whole country?
Huge opportunity
James Browny : Tesla isn't an underwriter? Then they don't get profits. They're a broker. Fair enough. They don't put up capital or underwrite, but they get all the profits?
Insurance could be "30%, 40% of the business value"? Well, what's the market cap of Progressive and how much capital is invested in it? So you think making a billion dollars a year a year with 10 billion of capital invested will be worth 300B to 400B in market cap?
Stitch-fu James Browny: Exactly. Tesla could be America's largest carrier and underwriter and it would still be insanely overvalued.
Z9Gwqc14JU : Hmm, does TSLA insurance cover FSD failures?
ouySFiuuNu Z9Gwqc14JU: Blame the driver of course, 'FSD' (TM, not a description) is only a lv2 'advanced cruise control' driver assist feature, the driver is under the bus (literally and metaphorically).
IWsnAFZDHM : The five factors and the live daily feedback to decide your "score" are not only everything I'd hate in a car, it's also the world I want to run away from.
qPg7PBSdvS : Tesla always enters a market with the intent to disrupt, insurance is no different. With cars equipped with full self driving, it’s going to be hard for the traditional Insurance companies to complete.
BfqseGOSuE qPg7PBSdvS: Why? FSD doesn't exist but even if it did, why would Tesla insurance have an advantage? It's a commodity.
uploading qPg7PBSdvS: When will the cars get Full Self Driving though, 2018 as told to the first buyers (oh no, in the past), 2020 for robotaxis (oops, missed that as well). My best guess for Tesla is 2031 when they give up and buy Waymo product.