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Jul 2019

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Tesla to offer cheaper car insurance for autonomous vehicles

Source: Asia Insurance Review | Jun 2019

In its 1Q2019 earnings call on 24 April, Tesla CEO Elon Musk confirmed that the automotive and energy company is working to provide an insurance product for its autonomous vehicles (AV), which may be based around Tesla’s Autopilot self-driving system.
 
Mr Musk said that the product, “will be much more compelling than anything else out there.”
 
This is not the first time Tesla has tried to provide insurance for its vehicles. In 2017, it partnered with Liberty Mutual Insurance (Liberty) to offer InsureMyTesla for owners of its electric cars. This move appeared to be in response to AAA raising the cost of insuring Tesla cars in certain markets.
 
While it will still be a few weeks before details on Tesla’s new insurance product emerge, there is a good chance it will look to offer lower premiums. Given that Tesla has more information about its cars and their owners, it will know how to price its risk better.
 
“We do give some more detailed information to insurance companies to help with rates,” said Mr Musk during the earnings call. “And obviously as we launch our own insurance product next month, we will certainly incorporate that information into the insurance rates.
 
“So, we essentially have a substantial price and sort of arbitrage or information arbitrage opportunity where we have direct knowledge of the risk profile of customers. And based on the car and if they want to buy Tesla insurance, they would have to agree to not drive the car in a crazy way. Or they can, but then their insurance rates are higher.”
 
For its upcoming foray into the insurance market, Tesla is working with Markel’s State National. However, it appears that State National is only helping Tesla develop the product and will not be taking on any risk.
 
“State National does not retain any business, their model is not to retain any of the business, and so this business is being seated on to Tesla’s risk-taking partner,” said Markel co-CEO Richard Whitt, during its 1Q2019 earnings call. A 
 
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