How Tesla Insurance Could Work

Photo by Roberto Nickson on Unsplash

It is simple, really…More Autopilot = Less Accidents

Most commentary [pay wall] about Tesla’s new insurance point to the data that the company can gather from customers’ cars, an idea pioneered by other insurance companies like Progressive and Metromile. Could Tesla know even more? Of course. They probably can not, however, improve dramatically on other insurance companies who have been measuring car data for over a decade. Also, personal insurance is often limited by states like California in how they can use that data. There will be some information, like video from cameras, that should make it easier to identify who is at fault, which would be a minor advantage. Claims adjustment is a minor cost for an insurance program.

Everyone, however, is missing a basic insight. As Tesla cars become more autonomous, they will get in fewer, and more minor accidents. That is a big deal. The biggest costs in insurance are collisions, especially major ones, and especially the ones involving injury and death. This is an advantage that Progressive et al will never have unless they join with an autonomous car company.

There is more to the story. As more people use autopilot for more and more miles, the liability for those miles is going to accrue mostly to Tesla, not the driver. Just like anti-lock brakes and other safety equipment, the maker of autonomous features will be liable in case it doesn’t perform properly. Less liability for the driver means less liability for their insurance company.

It all adds up to declining risk for the insurance company that stands behind the driver. It does, however, mean more risk for Tesla shareholders, but if I’m Tesla, I might as well get a benefit from that that additional risk. Tesla Motors can offer it’s customers cheaper insurance while Tesla Insurance can profit from declining claims.

Oh, and perhaps another bonus to having Tesla Insurance. Guess who often pays for the lawsuit when there is a dispute between the driver and the automobile company? Yup, the insurance company. There might be legal limits on how cozy that relationship can be (and if there aren’t there should be). Even with regulation, though, it seems inevitable that Tesla Insurance will be biased against bringing suit against Tesla Motors.

I’m a bit surprised that most observers don’t get the obvious connection. This is likely a fruitful direction for Tesla and it plays to their focus on autonomy.

About the author, Sunil Paul. He was co-founder and CEO of the company that invented ridesharing (Sidecar), helped incubate Getaround at Singularity University, sponsored the first law to protect peer-to-peer car sharing, and was on the board of one of the first car sharing projects. Disclosure: I own a small amount of Tesla stock, which is not material to my net worth.