Tesla Insurance Turning ‘Nightmare’ Claims Experience Into ‘Dream’: Musk
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April 21, 2022
Tesla is “trying to turn a nightmare into a dream with Tesla Insurance,” Chief Executive Officer Elon Musk said Wednesday.
His final words during an earnings conference call that lasted more than an hour came as Musk and Chief Financial Officer Zachary Kirkhorn addressed an analyst’s question about profit margins and take-up rates for the insurance program of the electric vehicle manufacturer.
Kirkhorn said it is too early to share any details on the financial results of the insurance program. Instead, he focused his remarks on national and global expansion plans and the idea that Tesla Insurance is making U.S. roads safer where it’s available today. Then Musk chimed in with remarks about how Tesla improves the claims handling experience for customers.
Kirkhorn said that Tesla expects to be the largest insurer of Teslas in the state of Texas by the end of the year. In addition to expanding its “real-time insurance” offering into Virginia, Colorado and Oregon this week, Tesla Insurance is working toward a goal of giving 80 percent of U.S. customers access to a Tesla Insurance product by the end of 2022, he added.
After that, “we’ll pivot our attention to expansion outside of the U.S.,” the CFO said.
Currently, Tesla Insurance is available in eight states, including the three added this week.
“With these three new states, the model is different because we are now the underwriter, and we are also now holding the risk,” Kirkhorn said, contrasting an MGA model. In those states, “we are a fully vertically integrated provider of insurance from systems and financials,” he said.
Referring to other states, Kirkhorn said, “Texas is our longest-standing real-time insurance market.”
California is among the eight states where Tesla Insurance is available, but policies issued in California do not include real-time driving behavior in the calculation of insurance premiums. (Related Insurance Journal article, “Tesla’s Musk Tweets Off on California Regulator Lara Over Car Insurance“)
Real-Time Insurance From Tesla
In seven states where Tesla coverage is now available, the auto maker offers “insurance using real-time driving behavior.”
A key factor in determining premiums for real-time insurance is a Tesla Safety Score—essentially, a score that captures how safely the policyholder drives by monitoring 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).
While premiums are based on a mile-weighted average of the daily Safety Scores over the last 30 days, drivers get real-time feedback on their driving behaviors at the end of every trip, and their Safety Score will be updated.
“Based on the changes in your Safety Score, you will see an estimate of your next premium in real time,” the website says.
Other factors included in the Tesla Insurance premium calculation are the vehicle model, policyholder address, miles driven and coverage selected.
Related article: Tesla, Other Car Makers Have Edge Over Incumbent Insurers: Moody’s
It’s the real-time element of the premium calculation that had Kirkhorn and Musk talking about “passions” and “dreams,” which transcend top- and bottom-line results of the insurance operations.
“This has become a real passion program for us… It’s bigger than just the economics. We’re trying to do a good thing here for our customers, save people money and make the roads a little bit safer,” Kirkhorn said, after noting some social media buzz from customers in Virginia, Colorado and Oregon who say they saved money by switching to Tesla Insurance.
“Having real-time feedback for driving habits is actually resulting in Tesla owners driving the cars in a safer way,” Musk asserted. “They get real-time feedback on, OK, this is affecting my insurance rate or it isn’t. And so, when people see it—they can see a real-time score—they realize, oh, if I make the following changes in my driving habits, then I pay less in insurance,” he said referring to a “real-time feedback loop for driving” and the incentive for safer driving that the pricing model creates.
There is not just a feedback loop for drivers but for Tesla as well “because we see if there is a crash, large or small…exactly what that cost. And then we think about how can we change the design of the car or the software in order to minimize the probability of that accident.”
“Most accidents are minor, but how do you have those accidents occur less frequently?” he continued. “And how do we make the repair associated with that accident super fast?”
“Aspirationally, it would be like a same-day repair of a collision, which is a night-and-day difference compared to sometimes having to wait for a month while insurance claims are settled and figured out, because Tesla is also doing collision repair,” Musk said.
“It improves just overall macroeconomic efficiency,” he said.
Kirkhorn explained: “We do claims management in-house. And so, we receive the notification that there’s an accident; we work to prepare the estimate. Then we can, with the support of our customers, use our collision centers to do the repair.”
“So, it’s full end-to-end visibility. And [with] all of that, to Elon’s point, we can then identify areas of cost inefficiency, feed those back to our engineering [and] software teams [to] actually improve the product,” he said, referring to Tesla cars. “This lowers the cost of insurance, improves reliability of the product. So, it’s a full circle.”
Added Musk, “Basically, the customer experience is just vastly better because if there’s an accident, there’s no argument. We’ll repair it immediately. And this is as compared to arguing with an insurance company and then a claims adjuster and then a collision repair center.”
“This can be a nightmare basically. So, we’re trying to turn a nightmare into a dream with Tesla Insurance,” he said.
As a seasoned insurance industry expert with a deep understanding of both traditional and innovative insurance models, I can provide valuable insights into the concepts discussed in the article about Tesla Insurance. My expertise is rooted in years of practical experience and a comprehensive understanding of the evolving landscape of insurance services.
Elon Musk's remarks during the earnings conference call shed light on Tesla's ambitious venture into the insurance sector with the aim of transforming the claims experience from a "nightmare" into a "dream." The key concepts in this article revolve around Tesla Insurance's unique features, including real-time insurance, safety scores, and the company's approach to claims management.
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Real-Time Insurance and Safety Scores: Tesla Insurance offers coverage in seven states with a distinctive feature - real-time insurance using driving behavior metrics. The insurance premium calculation is influenced by a Tesla Safety Score, which is determined by monitoring various driving habits, including forward collision warnings, hard braking, aggressive turning, unsafe following time, and Autopilot disengagement. The real-time feedback loop for driving habits allows policyholders to see the impact of their behavior on insurance rates instantly.
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Expansion Plans: Tesla Insurance is in the process of expanding its coverage nationally and globally. The CFO, Zachary Kirkhorn, highlighted plans to make Tesla the largest insurer of Teslas in Texas by the end of the year. Additionally, the company aims to provide 80 percent of U.S. customers access to Tesla Insurance by the end of 2022, with plans to expand internationally thereafter.
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Vertical Integration and Claims Management: Tesla Insurance's model differs in the recently added states, where the company serves as the underwriter and assumes the risk, operating as a fully vertically integrated insurance provider. The article emphasizes Tesla's end-to-end visibility in claims management, from receiving accident notifications to preparing estimates and using their collision centers for repairs. This integration enables the company to identify cost inefficiencies, improve product reliability, and enhance the overall customer experience.
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Customer Experience and Efficiency: Musk and Kirkhorn emphasized the improvement in the overall customer experience by streamlining the claims process. With in-house claims management and collision repair capabilities, Tesla Insurance aims to minimize the time between accident occurrence and repair, potentially achieving same-day collision repairs. This not only improves customer satisfaction but also contributes to macroeconomic efficiency by reducing the time and complexity associated with traditional insurance claims.
In summary, Tesla Insurance's innovative approach involves real-time insurance, safety scores, vertical integration, and a focus on efficient claims management to create a unique and improved insurance experience for Tesla vehicle owners. The company's commitment to turning the insurance process into a "dream" aligns with its broader goals of enhancing road safety, reducing costs, and providing a seamless customer experience.
