Why Tesla can do car insurance for less

Elon Musk recently announced that Tesla will be offering Tesla Car insurance. This could be more than just another step in the relentless drive toward vertical integration of all things to do with Tesla vehicles.

The notion of a car maker selling insurance has faced derision from analysts and observers as prominent as Warren Buffett, but Musk has said that Tesla can offer insurance “much more compelling than everything else out there.”

Jeremy C. Owens www.marketwatch.com

What the analysts and critics appear to have missed, is that all these Tesla cars have 360 degree cameras and accelerometers constantly recording the state of the car and its situation. In the event of an accident this data would be available to Tesla Insurance to defend against paying out. Add in sentry mode then it not only covers damage to the vehicles whilst being driven, but also records incidents when parked.

The evidence provided by these cars would make resolution of liability very cost effective for Tesla, reducing the major cost of providing vehicle insurance. This gives Tesla a massive advantage over other insurance providers.

With the vehicle telemetry being constantly available to the insurer, there is an opportunity to have dynamic pricing of insurance based upon the vehicle location and the driving style. Once autonomous driving is proven and legalised, there will be another step change, where potentially manually driven miles would incur a surcharge on the insurance premium.

Although promised within a month back at the end of April Tesla insurance is still not out of the blocks, apparently waiting for the completion of a “small acquisition that we need to complete and a bit of software to write”. I suspect that insurance will be offered to the US market, and Europe and the UK may not be addressed in the short term.

New technology will disrupt, but it seems the US insurance business and the analysts are not really joining the dots and coming to grips with the new reality.