Tesla's insurance business, which offers better rates to owners, could undercut traditional insurers, Moody's believes.
Tesla's insurance business, which offers auto coverage using real-time driving data to assess accident risk, shows that tech firms like Tesla can undermine traditional insurers. Their own emergence as an insurer is already pushing the insurance industry to strengthen its own insurers, according to Moody's.
Tesla understands and knows its vehicles, technology, safety, and repair costs like no one else, so it does not have the costs that traditional insurance companies have. The rate that clients will pay for insurance directly depends on this. Tesla Insurance provides a convenient monthly payment and reflects Tesla's active safety and advanced driver assistance features that come standard on all new Tesla vehicles.
Tesla Insurance uses real-time driving behavior. This means that the monthly insurance rate will be calculated taking into account the Safety Score with which each individual drives. Thus, the higher the Safety Score, the less the owner pays on a monthly basis. This encourages safer driving, as this directly affects how much users have to spend on insurance. Tesla constantly adjusts the amount of each owner's monthly installment based on the Safety Score. An average driver could save between 20% to 40%, and the safest drivers could save between 30% to 60%.
Currently, Tesla does not pose a direct threat to incumbent insurance companies as it mainly covers its own vehicles, however the threat is likely to grow over time as the manufacturer's market share increases and will increase if other automakers also enter the insurance market.
Moody's noted that longtime insurance companies may need to consider ways to adapt their business models if they are forced to compete directly with automakers. Incumbent insurers would be at greater risk of displacement if Tesla's business model were widely replicated by other leading intelligent vehicle makers.
As the penetration of such vehicles accelerates, automakers can increase their share of the insurance market through their superior underwriting model and strong customer relationships. Intelligent vehicles themselves pose a layered threat to traditional auto insurers.
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