Tesla wants your auto insurance business. It may not save you money

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If Tesla has your car loving heart, now it wants your auto insurance business.

The electric automaker has entered the insurance industry with a program in California – its largest market – and plans to expand to other states in the future.

While the company says its rates could be up to 20% cheaper than the prices of other insurers – even 30% in some cases – early reports from Tesla owners suggest some drivers are getting higher quotes than theirs. current coverage elsewhere, experts say. .

“While it is entirely possible that Tesla could offer significant savings, it is not clear whether the current [owners] will be able to take advantage of it immediately, “said Mark Fitzpatrick, auto insurance analyst at personal finance website ValuePenguin.” I believe Tesla will continue to refine its insurance program before rolling it out nationwide.

Tesla model 3

Silas Stein | image alliance | Getty Images

A Tesla spokesperson said a few bugs were found in the algorithm used for pricing policies for some customers and this has been fixed.

Tesla began offering the new policies in late August through Tesla Insurance Services, which is licensed as an insurance agency in California. Tesla CEO Elon Musk said on an April earnings call that an insurance option through his company would be “more compelling than anything else.”

Current Tesla owners can get a quote online through their existing account with the company. Policy management and the claims process will be handled by Tesla Insurance, while State National Insurance is the underwriter – the entity taking on the financial risk of Tesla policies.

Tesla officials did not respond to a CNBC request for specific policy quotes.

Tesla Insurance is also taking steps to become a full-fledged insurer, which would also mean being able to underwrite its own policies. Tesla’s spokesperson declined to comment on when or if it would mean venturing into other areas of coverage, such as home or life.

Teslas tend to be more expensive to insure, largely due to the cost of repairing them. Collision coverage is between 57% and 65% of the cost of a policy, according to ValuePenguin.

In California, the average cost of an insurance policy for a Model 3 – the cheapest Tesla with a 2019 base price of $ 35,000 – is $ 1,913 per year, with a full and collision deductible of 500. $, according to ValuePenguin’s survey of three insurers (State Farm, Geico and Progressive).

Insurance is higher for more expensive models: on average $ 2,473 per year for Model X (2019 base price of $ 81,000) and $ 2,963 for Model S (2019 base price: $ 75,000 ).

Tesla argues that because it knows more about its cars, technology, and repair process, it can offer cheaper policies. It also reduces some costs, like commissions, which are common with auto insurance policies sold through other insurers.

While Tesla’s policies will be discounted for the car with an autopilot function, other discounts that can be applied are common in the industry.

Musk has talked about having access to all kinds of data, but right now they’re not really using it.

Matt timmons

Research Analyst at ValuePenguin

“Discounts for multiple policies, or for being a good driver or having an anti-theft device, are not specific to Tesla,” said Matt Timmons, ValuePenguin research analyst.

And although anonymous and aggregated data is currently used to help price California policies, the company does not use or record data from individual vehicles, such as GPS or vehicle camera images.

Regulatory documents and comments from company executives suggest that Tesla may wish to use individual driving data to establish pricing policies, if drivers agree and the laws of a particular state allow it.

Where permitted, some insurance companies already offer policies that use so-called telematics – direct data from your car about your driving habits via a specialized device or smartphone app – to potentially offer benefits. additional discounts for prudent drivers (those who avoid excessive speeds, hard braking, etc.).

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Tesla’s spokesperson said the company plans to incorporate more types of data into its insurance offerings over time, but declined to provide further details.

After the news of the company’s planned move to insurance in April was announced, Warren Buffett, chairman of Berkshire Hathaway, said Tesla would likely struggle to enter the insurance business – something the company Buffett is investing heavily.

Musk endorsed the idea that automation in cars would lower insurance prices. However, in 2017, several insurance companies increased their rates on Tesla cars, claiming they generated more claims and were more expensive to repair.

That year, the company partnered with Liberty Mutual in the United States to offer InsureMyTesla, intended to offer cheaper policies to drivers. Tesla says the program is available in international markets such as Europe and Asia.

The switch to auto insurance complements Tesla’s preference to deal directly with consumers and eliminate middlemen in the car ownership experience. For example, it does not have franchised dealers and sells directly to consumers, which has prevented it from selling its cars in states that require a third party (i.e. a dealership) to sell all vehicles. vehicles.

Whether Tesla’s foray into insurance is successful remains to be seen, Timmons said. He said California places more restrictions on insurance companies than some other states, which would generally make it less attractive for an insurance startup.

“I think his success is still an open question in California,” Timmons said. “There is a disproportionate number of Tesla drivers in the state, which is why they start there, but Tesla doesn’t get as much flexibility in pricing as they offer as they would in others. States. “

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