Electric car maker Tesla has entered the insurance market, and some commentators have said it seems like a smart move.
The head of Tesla’s insurance program said that the automaker plans to use direct driver data where it can with permission from the owners as it expands the program.
Last month, Tesla launched its own insurance program – starting with availability in California, where the automaker claims up to 30% cheaper premiums than the competition.
It’s Tesla’s second entry in the insurance industry after its InsureMyTesla program in partnership with third-party insurers.
The new program is directly brokered by Tesla through State National Insurance and the automaker is much more involved in the entire process.
Tesla has access to more individual direct driver data than any automaker or insurance company thanks to its highly-connected vehicles.
Currently, the program doesn’t use individual data from drivers and instead, it uses “anonymized, aggregated data” from the fleet to create its prices.
CEO Elon Musk said that Tesla is going to focus on markets where they are seeing high prices to insure Tesla vehicles.
Last year, some insurance companies announced that they would increase their rates on Tesla’s vehicles based on a report that claimed “abnormally high claim frequencies” from Tesla owners.
While the idea of an carmaker holding insurance risks on its balance sheet is very rare, partnerships between car companies and insurance companies - allowing vehicle and policy to be bought together - are gaining in popularity.
Allianz has set up a unit called Allianz Automotive to look for similar deals. It has arrangements with 40 motor manufacturers including Volkswagen and PSA. This year it signed a deal with BMW in the Netherlands.
Martin Hoff, head of automotive market management and innovation at Allianz Automotive, said the carmakers offered a new route to market. But another reason that such tie-ups make sense is because of evolving auto technology, and the increasing importance of data.
“Cars are becoming more intelligent and connected. We see a strong value in working with car manufacturers to capture the new technology and create better products for consumers,” he said.
State National, a subsidiary of Markel, will be insurer of record for the Tesla insurance policies, underwriting the risk and setting prices. While Tesla currently only has regulatory approval to act as a broker in California, State National is licensed to sell insurance in all 50 US states.
State National is a speciality property-casualty insurer rather than a car insurer. It will reinsure all of the risk it takes on in the Tesla partnership, as it does with most of the risks it assumes, according to Markel. State National is, in effect, taking a servicing and underwriting fee while passing claims risk on to the reinsurers. The company has not disclosed which underwriters have bought the Tesla policy risks.
