Tesla’s Insurance Revolution: Taking Control in California
Is Tesla making a giant leap forward in the insurance sector? Perhaps. The electric vehicle (EV) manufacturer has taken a considerable step by transitioning to self-underwriting in California. This marks the first time Tesla will fully manage its own insurance policies since launching Tesla Insurance in 2019.
Previously, Tesla partnered with State National, a subsidiary of Markel Insurance Group, to underwrite policies. Now, the company is bringing this process in-house, beginning with its home state.
Tesla’s move to self-underwriting reflects a broader trend among automakers to exert more control over the insurance process. The question of liability is increasingly important. As self-driving software becomes more prevalent, automakers want to ensure their vehicles are properly covered.
Discount for Tesla Customers
California Tesla Insurance customers who opt to transition to Tesla’s in-house underwriting will receive a one-time 3% discount on their next premium, covered entirely by Tesla Insurance.
Why Self-Underwriting?
This decision aligns with Tesla’s strategy of vertical integration, a business model the company has successfully applied to manufacturing, software development, and energy solutions. By taking control of underwriting, Tesla gains more influence over key factors such as pricing, claims processing, and repair costs. The ability to leverage extensive driving data is another major advantage.
While California doesn’t permit Tesla to use its Safety Score system to determine premium costs, the company can still utilize its vast driving metrics to refine risk assessments and pricing models elsewhere. Moreover, Tesla’s move gives it more control over repair expenses and decisions regarding total vehicle losses, ensuring repairs adhere to its standards and potentially reduce costs.
Expansion Plans and Performance
Tesla’s insurance arm has shown substantial growth, with Tesla General Insurance and Tesla Property & Casualty recording significant increases in written premiums in Q3 2024. However, financial reports indicate a net underwriting loss of $42 million over the first nine months of last year. The company’s expansion efforts haven’t been without setbacks, but the transition to self-underwriting in California may help improve its financial standing.
Tesla’s foray into underwriting also ties into its future ambitions. The company is preparing to launch a fleet of autonomous robotaxis in June. Direct control over insurance policies will allow it to assume liability and provide tailored coverage for self-driving vehicles.
Industry Reactions and Challenges
Tesla’s move to self-underwriting comes amid broader turbulence in the auto insurance market for some EVs. For example, a Tesla Cybertruck owner recently found his insurer, GEICO, refusing to renew coverage, citing underwriting guidelines. This rejection highlights industry concerns regarding EV repair costs and underwriting risks. Many traditional insurers have struggled with Tesla’s repair pricing and long wait times, making it more challenging for owners to find competitive policies.
Tesla’s decision could address these concerns by offering coverage tailored to its vehicles which may make EV ownership more affordable. However, Tesla has previously faced consumer complaints and regulatory scrutiny.
The Future of Tesla Insurance
Insurance analyst Adam Denninger noted, “What they’re doing is cutting-edge. It’s exactly where the rest of the insurance industry is going for telematics. Everybody wants to feed data off their cars.” Tesla’s push to control its own underwriting isn’t just about eliminating middlemen; it’s an effort to redefine auto insurance for electric and autonomous vehicles. If Tesla succeeds in California, it could expand this model nationwide and even globally, reshaping the landscape of EV insurance.
