Yesterday Tesla introduced their own insurance product which, according to marketing spin, will save money because they “uniquely understand” their drivers and safety features.
When he heard about this in back in May, Warren Buffett said “I’d bet against any company in the auto business getting into insurance.”
My initial check of Tesla owner quotes indicated few found savings. Tesla might have done some market research on price if a car is insured on a stand-alone basis, but very few Tesla’s are. Most are bundled with other cars, homes and umbrellas and the bundled price for a single vehicle is much lower than stand-alone.
Maybe Tesla also learned the big intro was a flop because a few hours after launch they took the entire insurance program “offline” for what they called “algorithm changes.” That is not confidence inspiring.
Tesla doesn’t offer insurance for other brand cars, homes or umbrellas, so they offer no bundle discounts. What they also don’t offer is the professional advice required by the higher net worth individuals who buy Teslas. For example, if Tesla auto insurance liability limits are too low, there could be a gap to umbrella. And most umbrellas require the underlying auto insurance be with the same carrier. This is serious stuff involving millions in client risk exposure.
The lack of disclosure regarding the behind the scenes insurance carriers for the Tesla branded product is also concerning. A strong balance sheet is a must for an insurance company to be around in good times and bad. Surely one wouldn’t want Tesla itself, a company that requires frequent capital infusions to stay solvent, as an insurer. Tesla’s stock price is down 35% year to date.
Insurance for Teslas is expensive because the high cost of replacing technology and parts exceeds the limited benefit of safety features. Independent experts disagree on the impact Tesla safety features have on accident frequency, but Tesla has decided they know better. No safety feature can prevent an expensive Tesla from being sideswiped by an uninsured motorist while parked. Understanding that is not “unique.”
Further, last April Elon Musk said if a driver uses the vehicle “in a crazy way” Tesla could raise that customer’s insurance rates. It sounds like Tesla wants to use car performance metrics to help them manage insurance costs. Do Tesla drivers want to be monitored?
Bottom line…I think Warren Buffett is right. Tesla makes good cars but has their hands more than full just staying in business as a car company. I would be very cautious with them as insurer.