Elon Musk and Tesla Venture into Car Insurance

Electric car maker Tesla has started underwriting auto insurance for its customers in eight states. 

The insurance offered by Tesla General Insurance differs from other auto insurance policies in that Tesla uses policyholders’ real-time driving data to set policy premiums.

Currently, the company’s auto insurance is available to drivers in Arizona, Colorado, Illinois, Ohio, Oregon, Texas, Virginia, and California (in a limited capacity). Tesla has plans to roll out its insurance offerings in Massachusetts and other states by the end of 2022.

In news reports, Tesla founder and shareholder Elon Musk said Tesla Insurance will result in lower premiums, safer driving, and better service.

“Tesla uniquely understands its vehicles, technology, safety, and repair costs, eliminating traditional insurance carriers’ additional charges,” the company says on its website.

Using Real-Time Driving Data to Set Insurance Premiums

Tesla drivers with Tesla Insurance make monthly insurance payments based on their actual driving behavior.

Traditional auto insurers like Geico, Progressive, Allstate, and State Farm typically rely on factors such as a driver’s age, gender, credit rating, and claim history to set policy premiums. And while some insurers offer discounts when drivers agree to install a tracking device in their vehicles, they use the culled driving data in tandem with those other factors to calculate rates.

In contrast, Tesla owners do not need an extra device installed inside the vehicles. Instead, Tesla technology already present in Model S, Model 3, Model X, and Model Y cars can evaluate policyholders’ actual driving behavior. Tesla can use that real-time data to determine premiums.

Specifically, Tesla sets premiums based on a driver’s vehicle model, address, miles driven, selected coverages, and something Tesla calls the car’s monthly “Safety Score.” This number, which can range from zero to 100, is based on five factors:

  1. Forward collision warnings
  2. Hard braking
  3. Aggressive turning
  4. Unsafe following
  5. Forced Autopilot disengagement

Autopilot is Tesla’s driver assistance technology that allows Teslas to steer, accelerate, and brake automatically within a lane.

Many of these driving behaviors fall under the category of aggressive driving, and any one of them can cause a serious or fatal car accident. 

Tesla says its insurance will allow an average driver to save as much as 40% compared to other policies, and the safest drivers to save as much as 60%.

As of April 2022, the average cost to insure a Tesla in Massachusetts for a year was $1,567, according to NerdWallet.

The Nuts and Bolts of Tesla’s Car Insurance

Both new and current Tesla vehicle owners can buy a policy “in as little as one minute” through the Tesla app, the company says on its website. In addition, Tesla vehicle owners who own other makes of cars can insure those vehicles under a Tesla Insurance policy.

After purchase, consumers can access the Tesla Insurance card through the app. Following a car accident, individuals with Tesla Insurance can use the app to submit and track claims and schedule repairs.

Tesla’s access to vehicle information allows it to analyze the data following a crash and determine the cause of an accident. Then, post-accident, it can tweak its software or vehicle designs and decrease the risk of a reoccurrence involving other cars.

Tesla Insurance provides basic coverages, including liability, collision, comprehensive and uninsured motorist. Like other insurance carriers, optional coverages include gap insurance, roadside assistance, and rental reimbursement.

In addition, an “Electric Vehicle Protection Package” provides coverage for the Tesla wall charger and electronic key replacement. Tesla also offers multi-car discounts, an Autopilot discount (based on the autonomy level of the Tesla model), and discounts for certain drivers who take defensive driving classes.

Tesla stresses that not all insurance plans are the same and says coverage depends on individual drivers’ needs.

Tesla Insurance Might Not Appeal to All Drivers

Specific Tesla drivers may opt to pass on the company’s insurance and go with another carrier. For example, drivers who are not motivated to change their driving habits or have good credit and a clean driving record may be content to stay with their current auto insurance company.

Also, drivers with privacy concerns may not be keen on Tesla tracking their driving habits. However, it is worth noting that the technology needed to track a person’s real-time driving behavior is already present in Tesla vehicles.

Before selling its auto insurance policies in Massachusetts and the rest of New England, Tesla must get approval from state insurance regulators. This is no easy feat. (In California, for example, state laws prohibit using real-time driving data to set rates.) Nevertheless, the company’s goal is to be in enough states by the end of the year that 80% of Tesla drivers in the United States can purchase their auto insurance directly from Tesla.

In Texas, the second-largest state by population, Tesla is already the second-largest insurer of Tesla vehicles.

However, industry experts remain skeptical regarding whether Tesla can turn a profit in the competitive auto insurance business (especially considering the repair costs associated with its high-tech electric vehicles.)

And there are still questions about what it will be like to deal with Tesla Insurance following a car accident claim. Will the company offer fair and reasonable claim settlements or extend low-ball offers to increase profits and boost their bottom line like many other insurance companies? Dealing with insurance companies is never easy.

Our Boston car accident lawyers are anxious to delve into these and other issues once Tesla Insurance makes its way to the Bay State. Our personal injury lawyers can help with an auto accident involving a Tesla and all other types of vehicles. Contact Jeffrey Glassman Injury Lawyers LLC for a free legal consultation at (617) 777-7777 or complete our online form.

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