It’s always been an interesting question - if car makers make self-driving software, then shouldn’t they be liable for any faults in that software that allow their vehicles to crash? Barring third parties, the liability should be quite clear.
And that is why there has been a slew of automaker-based initiatives to start at least the appearance of offering insurance.
Volvo, for example ran a promotion with an insurance broker claiming that Volvos should be cheaper to insure, and implemented an all-in-one subscription for their vehicles. Ford started data sharing data with Allstate, and then Elon Musk’s Tesla announced that it was to offer its own insurance, soon to be a substantial part of the carmaker’s business. “Obviously, insurance is substantial. So, insurance could very well be, I don’t know, 30%, 40% of the value of the car business, frankly,” Musk said at the time.
And now, the high-profile EV maker has taken a significant step in its auto insurance venture by shifting to self-underwriting in California, marking the first time the company will fully manage its own policies since launching Tesla Insurance in 2019. Previously, Tesla partnered with State National, a subsidiary of Markel Insurance Group, to underwrite policies. Now, the electric vehicle manufacturer is bringing this process in-house, beginning with its home state.
California Tesla Insurance customers who opt to transition to Tesla’s in-house underwriting will receive a one-time 3% discount on their next premium, covered entirely by Tesla Insurance.
The decision to underwrite its own insurance policies aligns with Tesla’s broader strategy of vertical integration, a business model the company has successfully applied to manufacturing, software development, and energy solutions. By taking control of underwriting, Tesla gains more influence over key factors such as pricing, claims processing, and repair costs.
One major advantage of this shift is Tesla’s ability to leverage its extensive driving data. Although California does not permit Tesla’s Safety Score system to determine premium costs, the company can still utilize its vast driving metrics to refine risk assessments and pricing models elsewhere.
Additionally, Tesla’s move gives it more control over repair expenses and decisions regarding total vehicle losses, ensuring repairs adhere to its standards while potentially reducing costs.
Tesla’s insurance arm has seen substantial growth, with Tesla General Insurance and Tesla Property & Casualty recording significant increases in written premiums in Q3 2024. However, financial reports indicate challenges, with Tesla’s insurance carriers reporting a net underwriting loss of $42 million over the first nine months of last year. The company’s expansion efforts have not been without setbacks, but the transition to self-underwriting in California may help improve its financial standing in the long run.
Tesla’s foray into underwriting also aligns with its future ambitions. The company is preparing to launch a fleet of autonomous robotaxis in June, and having direct control over insurance policies will allow it to assume liability and provide tailored coverage for these self-driving vehicles.
Tesla’s move to self-underwriting comes amid broader turbulence in the auto insurance market for some EVs. Tesla Cybertruck owner, Robert Stevenson, recently revealed that his insurer, GEICO, had refused to renew coverage for his vehicle, citing that it did not meet underwriting guidelines. “After a careful review of your policy records, we have determined that we are unable to continue your insurance coverage for the 2024 TESLA CYBERTRUCK,” GEICO stated in a letter shared by Stevenson.
This rejection highlights ongoing industry concerns regarding EV repair costs and underwriting risks.
Traditional insurers have reportedly struggled with Tesla’s repair pricing and long wait times, making it more challenging for owners to find competitive policies. Tesla’s decision to underwrite its own policies could help address these concerns by offering coverage tailored specifically to its vehicles, potentially making ownership more affordable.
While Tesla’s move into underwriting is a bold step, the company has faced hurdles in the insurance space before. Consumer complaints and regulatory scrutiny have previously plagued its insurance operations, and expansion efforts outside the US, such as a planned European launch, have been delayed. Additionally, a class-action lawsuit in California alleges that Tesla’s insurance model has overcharged some drivers based on inaccurate vehicle safety data.
Despite these challenges, experts believe Tesla’s long-term vision remains intact. Insurance analyst Adam Denninger noted, “What they’re doing is cutting-edge. It’s exactly where the rest of the insurance industry is going for telematics. Everybody wants to feed data off their cars.”
Tesla’s push to control its own underwriting is not just about cutting out middlemen - it’s a calculated effort to redefine auto insurance for electric and autonomous vehicles. If the company succeeds in California, it could expand this model nationwide and even globally, reshaping the landscape of EV insurance in the process.
