Auto disruptor looks to shake up car insurance

By Sam Sklar

Along with other disruptions to the car industry, Tesla is now poised to change the auto insurance market. Tesla has partnered with Liberty Mutual Insurance Company to roll out a Tesla-specific insurance product called InsureMyTesla. This insurance package includes benefits like “New Car Replacement,” which allows for a brand-new car within the first year in the case of a total loss, a rate guarantee for a year, genuine replacement parts, and additional roadside assistance.

If these provisions seem like traditional insurance perks, that’s because they are. However, Tesla discovered that some of its owners were paying significantly higher premiums for these features than owners of other cars. Reports from the Insurance Institute for Highway Safety stated that “Teslas get into a lot of crashes and…are more expensive to repair.” The truth to this is evident in a spike in claims for Tesla Models S and X. As a result, insurer AAA hiked its premiums as much as 30 percent to cover these claims.

Tesla responded. As Tesla’s AV technology has become more automated and less risky, at least as perceived by insurers, the EV manufacturer has partnered with an insurance company to offer a product that reflects these safety improvements. This policy is now available to Tesla owners in the U.S. and Canada. The insurance policy, which is underwritten by insurance giant Liberty Mutual, takes into account automated vehicle technology —especially Tesla’s Autopilot feature — that the National Highway Traffic Safety Administration figures has reduced Tesla crashes by 40 percent since its introduction.

Tesla claims that as AV technology becomes more common in cars they, will become safer and cheaper to maintain, and insurance premiums should follow suit. Tesla VP of Sales and Services, Jon McNeill, envisions a future where the price of the vehicle, maintenance, and insurance are bundled.

Lots of questions still exist, including what happens to the insurance markets if AVs become fleet-owned by cities, Transportation Network Companies, or other entities and fewer individuals own cars. In addition, analysts have wondered whether the owner of an AV or the manufacturer will bear the legal responsibility for crashes. Tesla’s integration of ownership and insurance may be a first step to answering this question.

Sam Sklar is a Program Associate at SSTI.