Tesla introduced the latest addition to its list of sleek product innovations last month: car insurance.
The news of a car manufacturer insuring its own vehicles made headlines even outside the Tesla bubble, but the idea was met with skepticism by some long-established industry experts. At his company’s annual meeting in May, Warren Buffet, CEO of Berkshire Hathaway,predicted: “I don’t think they’ll make money in the insurance business.”
However, Tesla believes it has the key to success: a ridiculous amount of very specific data.
“Because Tesla knows its vehicles best,” the company website boasts its insurance product will offer up to 30% discounts and convenient payments, currently available exclusively for Tesla drivers in California. Not only do they know their own products best, but with all of the data they have on our interactions with those products, it means they also know us really well. Too well? That depends on how you feel about data privacy.
Car insurance could be about to get a lot more personal.
According to the company website, Tesla is currently using aggregate data as a factor in its insurance pricing, which is not unlike the car insurance industry as a whole. Although the amount of data already available to and used by insurers is nothing new to industry experts, it may surprise many consumers. And if Tesla’s latest moves are any indication, the scope of information collected and used by insurance companies seems likely to expand in coming years.
There are benefits to drivers that come with insurers having access to more detailed, user-specific data. For example, it is now common for companies to offer voluntary tracking devices that drivers can install on their vehicles in exchange for a discount (assuming they are safe drivers). And as automation technology improves, some industry experts see the opportunity for data to allow even more savings due to the self-driving potential of Tesla’s fleet.
“We could charge less for miles driven in an autonomous mode compared to human-driven miles in the same way insurers treat miles driven by teenagers differently than those driven by their parent,” said Dan Preston, CEO of Metromile, a pay-per-mile car insurance company.
No one likes to pay more than their fair share, but unless Tesla’s next innovation is a crystal ball, insurers will have to continue to lean on predictions to price their services. With an increased amount of data points on each individual, insurers are able to get closer to a true risk profile. This is only one piece of the overall puzzle to determining premiums along with factors like location, but it could translate to significant savings.
“In short, the evolution of auto insurance is best for consumers when it is personalized, can save them money, and provide a phenomenal experience.”
Dan Preston, CEO of Metromile
Tesla Insurance certainly has the potential to be incredibly personalized, and it may save people money, but is it going to be able to provide the “phenomenal experience” consumers are looking for? An ultra-connected insurer might sound like great news to a cautious driver travelling limited miles, but in an age where tech giants like Amazon and Google have made headlines for misusing user data, this type of access to and use of data raises concerns.
Tesla certainly isn’t the first major company with a wealth of personalized data that has offered exclusive insurance for its own products. Apple offers its own insurance, AppleCare+, with fixed rates and well defined coverage. Car insurance, however, is a lot more complicated, and the data behind the interactions users have with the products can be higher stakes. For example, Apple doesn’t have to worry about its iPhone veering off the road and hurting somebody.
Elon Musk has confirmed that Tesla already shares “some more detailed information” with insurers. Tesla users are technically able to opt-out of this data collection, but the limitations placed on the vehicle make it impractical. Once Tesla navigates the legality of using the individualized data it collects in insurance pricing, the amount of control users will have over their own information is unclear.
As the industry continues to leverage user-specific data through voluntary programs, the introduction of Tesla Insurance may signal a move toward more sweeping and compulsory data collection. Whether Tesla’s insurance product succeeds or flops, it seems to elevate a transaction familiar to today’s consumers: trading an undefined amount of personal data for (potentially temporary) convenience and cost savings.
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About the Authors
Samantha Kostaras is an insurance reporter who covers personal finance and insurance. After a degree in finance from the University of Alabama and stint at Morgan Stanley, she worked as a financial analyst before becoming a journalist. Her writing has appeared in The Simple Dollar, Reviews.com, Coverage.com, and elsewhere.
