News & Markets
Tesla, Other Car Makers Have Edge Over Incumbent
Auto Insurers: Moody’s
By Susanne Sclafane
T
esla and other car makers represent
a growing threat to incumbent auto
insurers, even though they have
little direct impact on the insurance market
today, Moody’s Investors Services said.
In a report titled, “Tesla’s insurance
16 | INSURANCE JOURNAL | APRIL 4, 2022
venture puts incumbents under added
pressure to innovate,” Moody’s reviews the
competitive advantages of Tesla’s insurance business — mainly, the advantage of
having data generated by Tesla cars that
can monitor driver behavior.
With the data, Tesla has the ability to
offer substantial premium savings to safe
drivers. In addition, Tesla likely has much
lower operating expenses than traditional
insurers, who incur costs of 20%-30%
of premiums for marketing and claims
handling, Moody’s analysts noted in the
report.
In-car cameras and sensors can detect
accident causes, lowering claims handling
costs. Furthermore, Tesla’s established
relationships with customers cut market
expenses, the report said.
Tesla’s ability to estimate collision
frequency with a high degree of accuracy
translates into savings for drivers ranging
between 20% to 40% vs. traditional
insurers — and 30% to 60% for the safest
drivers, Moody’s added. Although the
report doesn’t offer any attribution for the
discount percentages, Tesla does make the
same statement on its website.
The Moody’s report also offers an illustration of how Tesla calculates a monthly
“safety score,” which is a key factor in
calculating premiums — and savings. The
“safety score” calculation, also described
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on Tesla’s website, considers
forward collision warnings
per 1,000 miles, hard braking,
aggressive turning, unsafe
following time and forced
Autopilot disengagement (a
measure of inattentiveness
when using Tesla’s Autopilot
advanced driver assistance
system).
During a third-quarter
earnings conference call last year, Tesla’s
Chief Financial Officer Zach Kirkhorn told
analysts and investors that the “safety
score” was actually a feature for Tesla’s
Full-Service Driving beta enrollment
program, and that 150,000 cars were using
a “safety score” at the time of the call.
Adding that Tesla had analyzed 100 million
miles of driving data, Kirkhorn said the
probability of a collision for a customer
using a safety score is 30% lower than one
not using the safety score. “It means that
the product is working and customers are
responding to it,” he said.
The CFO also said the predicted collision
frequency in the safety score lines up
well with actual driving Tesla data. “Most
notably, if you’re in the top tier of safety
compared to lower tiers, there’s multiple X
difference in probability of collision based
upon actual data.”
Google Not A Threat; Car Makers Are
The Moody’s report notes that Tesla
doesn’t pose a direct threat to incumbent
auto insurers today because Tesla insurance is only available for Tesla cars. But
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demand for battery-power electric vehicles
is taking off, a graph in the report shows. If
other smart EV makers join Tesla in entering the insurance business, incumbents
could face serious competitive risks.
Even though factors like a high capital
burden and thin underwriting margins
have kept other “data-rich tech groups,”
like Amazon and Google, out of the
insurance business, car makers have
already dipped their toes in insurance
waters — with captives offering car finance
and warranties, making auto insurance a
next logical step.
‘Tesla’s ability to estimate
collision frequency with a
high degree of accuracy
translates into savings for
drivers ranging between
20% to 40% vs. traditional
insurers — and 30% to 60%
for the safest drivers.’
If they do not move into auto insurance
markets, the car makers have
control over the driving data
— putting them in the driver’s
seat to partner with incumbents
who would have to fork over
some profits to access data and
customers, the Moody’s report
said.
The report goes on to list
various reasons why other EV
makers might want to jump into
the insurance game, putting them at the
center of connected car digital ecosystems,
while outlining factors why these car manufacturers might stay away from insurance
(accumulation risk in the event of a cyber
attack, for instance).
Whether car makers dive into auto
insurance, emerging trends point in the
direction of increased take-up of connected cars, which will force incumbents to
innovate, the report said. Business model
innovation for traditional insurers could
involve moves in the direction of risk
prevention rather than risk transfer, and
even more radical ones — like acquiring a
smart car maker to gain continued access
to customers and driving data, the report
concluded.
Sclafane is executive editor of Carrier Management,
a publication of Wells Media Group serving property/
casualty insurance carrier executives. She is a
media professional with deep background in the P/C
insurance industry including 25 years as editor and
reporter for trade magazines, online news services,
digital journals. Her prior experience includes 14
years as a casualty actuary.
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