Tesla Wants to Insure Its Drivers, and Will Double Down on Tracking Data to Do It

Maggie Overholt
Maggie Overholt

Tesla’s worse-than-expected losses per share weren’t the only head-turning news that came out of a Q1 earnings call with Elon Musk last Wednesday. We also learned Musk will be getting his hands on even more of the customer experience by offering in-house car insurance for Tesla customers — supposedly starting sometime next month.

“The answer is yes,” said Musk, “we are creating a Tesla insurance product, and we hope to launch that in about a month. It will be much more compelling than anything else out there.”

Elon Musk Tesla Insurance
Screen capture: Tesla

What will make Tesla’s coverage so much “more compelling” for its drivers than other insurance products? Hard to say, given that Musk has said very little on the topic. But from what we know, the main advantage will be lower insurance rates for Tesla owners, who often pay two to three times more than other customers for their coverage.

“[Companies like] Geico and State Farm are basically fleecing Tesla owners,” venture capitalist and CNBC contributor Gene Munster told the station on Wednesday. “Those cars are less likely to get in accidents but they charge more in premiums.”

There’s no definitive answer as to why it costs so much more to insure a Tesla, though insurance analysis sites like AutoNews and ValuePenguin blame a large part of the rate hike on collision and comprehensive coverage, which are much pricier for luxury — not to mention, electric — vehicles.

According to Value Penguin, Tesla owners currently pay anywhere from $1,900 per year to insure a Model 3 to almost $3,000 per year for a Model S. The Model Y, when it hits the market, could likely sit snugly between these two for insurance prices.

Compared to the most recent nationwide average to insurance a non-Tesla — $1,062 per year, according to the National Association of Insurance Commissioners — it’s easy to see how drivers might feel like they’re being taken for a ride.

Cost per year to insure a Tesla

*National average according to the most recent data from the National Association of Insurance Commissioners. Average rates for Tesla according to Value Penguin.

The need for a better insurance solution for Tesla drivers might seem clear. But the question remains of how Musk plans to lower insurance rates for his customers. It’s a very particular challenge.

High replacement costs aside, insuring Teslas has been an ongoing challenge for providers as they struggle to reconcile the accuracy of their underwriting predictions with the cars’ newfangled semi-autonomous capabilities.

“Individually owned vehicles with semi-autonomous features (and full autonomy in the future) are difficult for insurers to assess,” writes Peter Newman, a Research Analyst at Business Insider, “because various parties will contest how well the systems perform.”

And as for Musk? Unsurprisingly, he’s confident in the reliability of Tesla’s self-driving features when it comes to road safety and accident prevention. In fact, the company’s insurance rates will likely depend heavily on tracking data from the vehicles’ Autopilot systems. These allow the company to gather real-time data about usage and driving habits, which it would then use to build out profiles for customers and set insurance prices accordingly.

The potential incorporation of Autopilot data has given some reporters and Tesla enthusiasts pause. Tech website ExtremeTech, for one, calls it “spying,” and claims that “knowing the big brother is watching [will] dampen the enthusiasm of many drivers.”

We’ll admit, it sounds a little creepy. But the fact of the matter is, if you drive a Tesla, your insurance company likely already has access to your driving data to some extent. Musk said as much in the earnings call on Wednesday.

“We do give some more detailed information to insurance companies to help with rates. And obviously as we launch our own insurance product next month, we will certainly incorporate that information into the insurance rates.”

Elon Musk, CEO of Tesla

Tesla isn’t the only company tracking customers’ commutes in an effort to lower insurance rates. Insurers like Progressive and Allstate have offered monitored driving discounts since as early as 1998.

These programs promise big savings for customers willing to install a telematic tracker in their vehicle to prove that they consistently observe safe driving habits. The devices collect data on drivers’ speed, braking, lane departure, and more — essentially, all the things Tesla’s insurance would take into consideration.

The difference? Telematic trackers from companies like Progressive are 100% optional. You must elect to join the program and have a physical tracking device installed in your car, leaving no question that you are aware and have agreed to be monitored in exchange for a cheaper insurance rate.

With Tesla’s proposed insurance, Musk has made it clear your vehicle and driving data will continue to play a key role in how your car is insured — potentially to an even greater extent than with third-party insurers.

How repellent that implied consent is to Tesla’s potential insurance customers will likely be determined post-launch, when we have a better feel for how much money a tracking-based insurance program could actually save Tesla drivers. Until then, Tesla owners may want to start weaning themselves off the ultra-fast Ludicrous mode.

About the Authors

Maggie Overholt

Maggie Overholt Contributor

Maggie is a former lead insurance editor at Reviews.com. She's written more than 70 insurance articles covering homeowners, auto, life, motorcycle, travel, and more.