Tesla and other automobile makers represent a growing threat to incumbent auto insurers, regardless that they’ve little direct impact on the insurance market today, Moody’s Investors Services said.
In a report titled, “Tesla’s insurance enterprise puts incumbents under added pressure to innovate,” Moody’s reviews the competitive benefits of Tesla’s insurance business—mainly, the advantage of getting data generated by Tesla cars that may monitor driver behavior. With the information, Tesla has the power to supply substantial premium savings to protected drivers. As well as, 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 within the report.
In-car cameras and sensors can detect accident causes, lowering claims handling costs. Moreover, 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 20-40% vs. traditional insurers—and 30-60% for the safest drivers, Moody’s added. Although the report doesn’t offer any attribution for the discount percentages, Tesla does make the identical statement on its website. The Moody’s report also offers an illustration of how Tesla calculates a monthly “safety rating,” which is a key think about calculating premiums—and savings. The “safety rating” calculation, also described on Tesla’s website, considers forward collision warnings per 1,000 miles, hard braking, aggressive turning, unsafe following time and compelled Autopilot disengagement (a measure of inattentiveness when using Tesla’s Autopilot advanced driver assistance system).
During a third-quarter earnings conference call last 12 months, Tesla’s Chief Financial Officer Zach Kirkhorn told analysts and investors that the “safety rating” was actually a feature for Tesla’s Full-Service Driving beta enrollment program, and that 150,000 cars were using a “safety rating” on the time of the decision. Adding that Tesla had analyzed 100 million miles of driving data, Kirkhorn said the probability of a collision for a customer using a security rating is 30% lower than one not using the security rating. “It signifies that the product is working and customers are responding to it,” he said.
The CFO also said the anticipated collision frequency in the security rating lines up well with actual driving Tesla data. “Most notably, when you’re in the highest tier of safety in comparison with lower tiers, there’s multiple X difference in probability of collision based upon actual data.”
Google Not A Threat; Other Automobile Makers Are
The Moody’s report notes that Tesla doesn’t pose a direct threat to incumbent auto insurers today because Tesla insurance is just available for Tesla cars.
But demand for battery-power electric vehicles is taking off, a graph within the report shows. As well as, if other smart EV makers join Tesla in entering the insurance business, incumbents could face serious competitive risks.
Though aspects like a high capital burden and thin underwriting margins have keep other “data-rich tech groups,” like Amazon and Google, out of the insurance business, automobile makers have already dipped their toes in insurance waters—with captives offering automobile finance and warranties, making auto insurance a next logical step.
In the event that they don’t move into auto insurance markets, the automobile makers have control over the driving data—putting them in the motive force’s seat to partner with incumbents who would should fork over some profits to access data and customers, the Moody’s report said.
The report goes on to list various other the reason why other EV makers might need to jump into the insurance game, putting them at the middle of connected automobile digital ecosystems, while outlining aspects these automobile manufacturers might avoid insurance (accumulation risk within the event of a cyber attack, for example).
Whether the automobile makers dive into auto insurance, emerging trends point within the direction of increased take-up of connected cars, which can force incumbents to innovate, the report said. Business model innovation for traditional insurers could involve moves within the direction of risk prevention fairly than risk transfer, and much more radical ones—like acquiring a wise automobile maker to realize continued access to customers and driving data, the report concluded.