Elon Musk is disrupting the marketplace again, this time by proving technology companies and car makers can undercut traditional insurers because they utilise the latest innovations with streamlined processes.
Tesla’s growing insurance division, has now launched its real-time-driver-data insurance product in Colorado, Oregon, and Virginia. The auto insurance is now available in seven states total. Tesla Insurance is also available in California - but lacks real-time driver safety data, due to state regulations.
Challenging the traditional insurance market
According to a report by Moody’s Investor Services, Tesla and other car manufacturers are becoming formidable competitors to incumbent auto insurers, despite the fact that they have little direct impact on the current insurance market as a whole.
Tesla’s own insurance business, which provides auto cover by using real-time driving data to assess accident risk, proves there is massive potential for technology firms to out-price traditional insurers with their low cost products.
Indeed, data shows that Tesla can currently provide cover at a 20-40% discount to mainstream insurers.
Furthermore, the insurtech has already revealed its capabilities as a serious marketplace contender by encouraging the insurance industry to enhance its own data-led underwriting, Moody’s report stated.
Car manufacturers could take on the auto insurance market
While right now, Tesla poses little direct threat to traditional insurers because primarily it covers its own vehicles. However the competition the technology car manufacturer poses, is sure to increase as Tesla’s market share grows. Experts also believe this will accelerate if other car makers also present their own insurance offerings.
Additionally, as the telematics and UBI market demand grows, technology provides smart car manufacturers a number of advantages. Tesla utilises data taken by its cars to track driver behaviour. This enables the technology giant to also assess accident risk far more accurately.
Until now, Tesla has not disclosed its marketing and claims handling costs. But they are predicted to be less than those incurred by incumbents because of vehicle sensors and cameras..
Long-term incumbents might also have to take into account ways of adapting their business models, states Moody’s, if they are compelled to compete with the automobile industry.
Smart car market is growing at a high rate
With the increase in smart cars globally, it is predicted that car manufacturers will almost certainly expand their insurance offerings due to their cutting edge underwriting model and strong customer relationships.
The report goes on to state a number of other factors that will lead EV manufacturers into the insurance market.
It concludes that as they are at the centre of the connected car digital ecosystem, they might distance themselves from traditional insurance offerings due to the accumulated risk in the event of a cyber attack, for instance.