Tesla Insurance Plans Surge Into Three New States

Tesla, led by high-profile billionaire Elon Musk, not only wants to manufacture your electric vehicle but it also wants to sell you the insurance for it.

Palo Alto, California-based Tesla already offers auto insurance in California and is seeking permission from state regulators to offer coverage in Illinois, Texas and Washington. During Tesla’s October earnings call, Musk said insurance someday could represent 30% to 40% of Tesla’s auto business. He boasts that Tesla is building “a major insurance company.”

Zachary Kirkhorn, Tesla’s chief financial officer, has said the company eventually will roll out auto insurance nationwide.

In earnings calls last year, Musk and Kirkhorn explained that Tesla’s auto insurance will be tied directly to a Tesla vehicle, enabling the company to assess a motorist’s risk based on driving behavior and then set monthly premiums accordingly. This is known as pay-as-you-drive or usage-based insurance. But Tesla says it currently uses anonymized, aggregated data from its vehicles to set rates, not data based on an individual’s driving.

Can Tesla Rewire Auto Insurance?

“Obviously, somebody does not have to choose our insurance. But I think a lot of people will. It’s going to cost less and be better,” Musk has claimed.

The company says its “competitively priced” premiums can deliver savings of 20% to 30%. Based on filings made to state regulators, Tesla may try to achieve these savings by planting itself firmly in a digital experience and reducing costs associated with traditional auto insurance sales and service.

Tesla intends to “use the technology in vehicles to lower costs and improve the customer experience through automated underwriting, rating, and claims, including direct data feeds with customer permission, that eliminate frictional costs and inefficiencies inherent in traditional insurance processes,” according to a regulatory filing in Texas. “The digital approach to purchasing insurance by the consumer will streamline and enhance user experience throughout the policy lifecycle; beginning with the quote through online bind, renewal, and in the event of a claim.”

Tesla Insurance Tries to Get Traction in California

California is the only state where Tesla currently offers auto insurance to buyers of its vehicles. The coverage is available for owners of Tesla’s Model S, Model X, Model 3, Model Y and Roadster models. Tesla introduced its California insurance in 2019.

State National Insurance Co. underwrites Tesla’s California policies.

In 2020 State National had more than twice the average industry average of consumer auto insurance complaints against it, according to data from the National Association of Insurance Commissioners.

Tesla Insurance Coverage

Tesla’s insurance will provide the basic coverage types you’d expect such as liability, collision, comprehensive, rental reimbursement and uninsured motorist coverage. According to a filing made to the California Department of Insurance, also available are:

• Gap insurance
• Roadside assistance coverage
• SR-22 insurance

An “Autonomous Vehicle Protection Package” will include coverage for autonomous vehicle owner liability and insurance for a wall charger, electronic key replacement and cyber identity fraud expenses. Autonomous vehicle owner liability will provide coverage when the car is being driven on autopilot rather than by a driver. Essentially, liability for crashes will shift to this coverage when the vehicle’s computer system is “at fault” in an accident.

Tesla Insurance Discounts

These discounts are available for Tesla Insurance in California:

• Elite good driver (no surcharged accidents and violations in the last five years and other eligibility requirements)
• Good student
• Multiple policy
• Persistency (meaning loyalty)
• Air bags
• Anti-theft device
• Mature driver improvement course for age 55 and older
• Autopilot discount based on the autonomy level of the vehicle

Setting Up Shop In Other States

Insurance regulators in Illinois and Texas have approved the rates and policies for Tesla Insurance, according to data from S&P Global Market Intelligence. Washington state has approved the initial forms.

So far, coverage is not yet for sale in these new states, and it’s unclear when Tesla will begin offering policies. Representatives for Tesla did not respond to requests for comment.

In Texas, Tesla plans to issue its auto insurance through Redpoint County Mutual Insurance Co. Redpoint County Mutual had a complaint level slightly higher than the industry average for auto insurance in 2020. Tesla’s Illinois partner will be Midvale Indemnity Co., a subsidiary of American Family Insurance. Midvale’s auto insurance complaint level was more than four times the industry average in 2018 and 2019, and was more than 15 times the industry average in 2020.

In Washington, Homesite Insurance Co. made its first filing on Jan. 25, 2021, with state regulators to underwrite Tesla Insurance. Homesite Insurance is also a subsidiary of American Family.

A “Viable Long-Term Threat”?

Tom Super, vice president of insurance intelligence at market research company J.D. Power, said Tesla’s insurance offering “could represent a viable long-term threat” to auto insurance powerhouses like Allstate, Geico, Progressive and State Farm.

“This will largely be determined by how quickly their vehicles penetrate the market and begin to make up a significant portion of vehicles on the road,” Super said. “In the near term, however, Tesla’s entry into the auto insurance market will have limited impact on the average auto insurance consumer, including the premiums they pay.”

Bob Hunter, director of insurance at the Consumer Federation of America, agrees that Tesla’s insurance would have little competitive effect overall—at least for now—on insurance premiums.

Tesla is among several automakers “getting their feet wet” in auto insurance, Hunter notes. For instance, GM announced in November that it would start offering OnStar-branded insurance to its employees in late 2020 and would make the product available to the general public in early 2021. So far, there’s no word on when the coverage will be broadly available. American Family Insurance issues the OnStar policies.

GM says its auto insurance will be available for vehicles that are and are not equipped with the OnStar communication system. However, premium discounts of up to 20% are not available for vehicles without the OnStar service. As with Tesla, GM allows policyholders to voluntarily share data that may help drive down premiums, such as data that gauges driving behavior.

Toyota also is involved in the insurance business, through its Toyota Insurance Management Solutions insurance agency. Toyota’s insurance partners—National General, Nationwide, Safeco and Travelers—issue the automaker’s policies in 38 states. Toyota Insurance Management Solutions lets policyholders opt in to share driving data, such as how fast and how much a motorist drives, to potentially reap savings on premiums. Judged by vehicle sales, GM and Toyota are much bigger players in auto insurance than Tesla. In 2020, Tesla sold almost 500,000 vehicles. By comparison, GM sold more than 2.5 million vehicles last year, while Toyota’s North American business sold more than 2.1 million vehicles.

Surging Ahead

In an article on its website, consulting firm Milliman describes competition in the car insurance industry as “fierce.”

“The competition for car insurance premium is fierce,” Milliman says. “Not only are car insurers competing against each other, but now they are also faced with an external-to-the-insurance-industry threat from car manufacturers. As car manufacturers and car insurers gain more vehicle data, the most innovative are in the best position to lower car insurance premiums and gain customers.”

Milliman helped Tesla develop safety scores based on a vehicle’s safety features and the predicted frequency of at-fault crashes among various safety tiers. These scores factor into Tesla Insurance pricing. This pricing model can reduce car insurance rates compared with insurance for “unconnected” vehicles.