It might be a bit frivolous to say Electric Vehicles (EVs) are “trending”, but the surging web searches hint at directional patterns. Government leaders are motioning to phase out fossil fuel-powered vehicles, owing to their contribution to pollution; more and more, people are becoming curious about EVs. Although there were around 6.9 million passenger Battery Electric Vehicles (BEVs) on the road as of 2020 (less than one million in 2015), it is still less than 1% of the total passenger vehicles in use (around 1.4 billion). Sales have increased at a strong three-year CAGR of 38.4% over 2017–2020, and we at SPEEDA Edge believe that there is still significant headroom for electrification. While the focus on EVs takes the forefront, the importance of specialized insurance is shadowed. Today, we look at EVs and insurance through the eyes of Elon Musk’s EV giant, Tesla.

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Let’s take a look at Tesla’s journey into insurance

Insurance for EV automobiles can get complicated; they can be expensive to repair among other challenges. It might explain why legacy insurance companies are slow to react to the EV need. As options were scarce to non-existent, Tesla moved into this space and, to quote Gali Filche, “create their own customized insurance product to accurately reflect the risks and safety of their vehicles.”

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When did Tesla enter the market?

In August 2019, Tesla launched its insurance offering. It had the advantage of leveraging the data and technology of Tesla vehicles to underwrite insurance to customers based on their driving behavior and use the information from the vehicles’ sensors and cameras when processing claims. 

Tesla also claims that its insurance can provide up to 30% lower premiums for Tesla vehicles compared to traditional insurers. Using its insurance program, Tesla expects more insights into common repairs, to alter the design of its cars to achieve cost savings in the long term.

Tesla entering the insurance game seems at first a logical solution, beneficial for both Tesla and EV owners, but it also ramps up the competition against players like Geico, State Farm, and Allstate.

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Where does Tesla offer its insurance?

In October 2021, Tesla announced the launch of its first usage-based insurance (UBI) offering in Texas. Additionally, it would calculate car insurance premiums based on the real-time driving behavior of its policyholders, collected by built in sensors, without factoring in metrics such as age, gender, claims history, or past driving records. Now, it is assessed by calculating “safety scores” that factor in various conditions that the driver faces on the road, and premiums payable every month may vary depending on their scores. At the moment, it is insuring only Tesla-made vehicles; however ever-expanding its reach in February 2022, Tesla is offering its insurance to 5 states this year: Arizona, California, Illinois, Ohio, and Texas.

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What are the avenues it has explored to offer insurance?

We’ve followed their interaction with insurers and noted that it’s via partnerships that it initially entered the insurance arena. The partnership with Phoenix Insurance Company, however, is related to providing insurance coverage in Israel. Phoenix will provide car insurance with discounts based on the driver's profile transmitted automatically to Tesla's cloud servers. 

Recently, however, in April 2022, Tesla initiated its own underwriting by Tesla General Insurance in Colorado, Oregon, and Virginia, unlike its strategy in other states. 

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What can we learn?

Tesla is leveraging its data collection, and optimizing insurtech, to understand EV insurance better and has made a wise move seeing that EVs are projected to surge in usage. While the initial route was by linking with an insurance player—not entirely in-house—it has entered into its own underwriting service as announced in April this year, though in limited states for now. The future of automobiles is changing, and insurance is its trusty side-kick that follows, so while Tesla doesn’t present a threat as of now, big insurers should keep an eye on its slow but steady expansion and ownership of auto insurance solutions.

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