How Tesla could disrupt the auto insurance industry
Tesla owners already live in an automotive future that features far lower bills for fuel and maintenance. Now the California carmaker is taking aim at another major expense of car ownership - insurance. Self-driving cars are widely expected to decrease the risk of accidents. A report released by the National Highway Traffic Safety Administration in January found that this is already starting to happen - since the 2014 rollout of Tesla’s Autopilot feature, accidents involving the company’s vehicles have declined by 40 percent.
Above (left to right): Tesla Model X and Model S (Instagram: whipsnbikechains)
If accident rates fall, then it seems logical that insurance premiums should decrease as well. A recent report from Bank of America and Merrill Lynch predicts that this is what will happen. The subject was discussed during Tesla’s recent fourth-quarter earnings conference call. A Morgan Stanley analyst pointed out that Tesla’s Autopilot features make it safer than other cars on a per-mile basis, and that insurance companies should take this fact into account when calculating premium rates. As is often the case, it turns out that Tesla is thinking way ahead of the game - it’s already testing a pricing model that bundles maintenance and insurance costs into the price of the car.
Above: One of Tesla Autopilot's key features, Autosteer, was shown to decrease the accident rate by 40% according to the NHTSA (Image: Motley Fool)
“We’ve been doing it quietly, but - in Asia in particular, where we started this - now the majority of Tesla cars are sold with an insurance product that is customized to Tesla,” President of Sales and Services Jon McNeill said during the earnings call. “It takes into account not only the Autopilot safety features, but also the maintenance cost of the car. So, it’s our vision in the future that we’ll be able to offer a single price for the car, maintenance and insurance, in a really compelling offering for the consumer.”
Above: Tesla begins to budge insurance into vehicle purchases in China (Youtube: NewsBeat Social)
Currently, Tesla is offering third-party insurance products in its stores, particularly in China, McNeill explained. However, Elon Musk added that someday Tesla might even get into the insurance business itself. “If we find that the insurance providers are not matching the insurance proportionate to the risk of the car then if we need to, we will in-source it,” he said. “But I think we’ll find that insurance providers do adjust the insurance cost proportionate to the risk of a Tesla.”
Above: Tesla Model X (Instagram: fxln)
Tesla has declined to comment on when it might make this option available in the US, or how much it would cost. However, if things go according to plan, Tesla’s future of lower-cost driving could arrive sooner than most people imagine. Elon has promised us a driverless drive from New York to Los Angeles before the end of the year, an accomplishment that would bring the self-driving world much more clearly into focus. And if Tesla offers the upcoming Model 3 in a package deal with insurance and maintenance included, that could make it an irresistible product, and send the legacy automakers scrambling to try to keep up.
For more on how self-driving cars will change the safety profile of automobiles and other benefits, check out the infographic below...