Tesla Insurance is poised to disrupt another billion-dollar industry, thanks to its massive data advantage over traditional auto insurance providers. The electric car maker’s insurance system is only available in California today, but the company plans to expand it to other US states, and later, to other territories. Once it does, it would be no surprise if Tesla ends up with millions of insurance customers from its fleet alone.
The automotive insurance business is as massive as it is lucrative. In the United States today, the car insurance market almost worth $300 billion. That’s a gargantuan market that is ripe for disruption, and it could very well come in the form of Tesla Insurance, which is nearly impossible to compete with if one is a traditional car insurance provider.
Steven Mark Ryan of YouTube’s Solving the Money Problem channel recently discussed the potential of Tesla Insurance. This is a pertinent topic, partly since the service is something that is rarely considered today, especially among Wall Street analysts. Yet Tesla Insurance is already growing, and it will only be a matter of time before it expands its reach to other territories.
Credit: Andres GE
Conventional insurance providers live or die with their actuaries, who are professionals whose is job is to analyze financial risk through a combination of mathematics, statistics, and finance theories. Actuaries determine how much of a premium is charged to the customer, using as much data as they can acquire. This is where Tesla holds an almost unfair advantage against its competitors in automotive insurance.
Tesla’s vehicles are always connected, and the company can tap into each member of its fleet to acquire every bit of information needed to provide owners with a fair and balanced insurance premium. The electric car maker can accomplish this easily since its cars already send back driving data to the company consistently. This means that when Tesla Insurance gives a quote for its service, owners can rest assure that it is based on actual driving data from their actual vehicles.
Such a model works very well for Tesla, since the company’s cars are improved at a rate that is unparalleled in the industry. Teslas are always in a state of change, as the company rolls out improvements as soon as they are ready to be released. The company’s electric cars are also incredibly safe, being up to six times safer than a regular vehicle when Autopilot and safety features are exposed.
But it’s not just about Tesla customers getting fair and reasonable premiums for their vehicles. Tesla Insurance can help boost the company’s finances. Say, if one were to use a $2,000 annual insurance premium as a starting point. Ten thousand customers of $2,000 already give the company $20 million of float every year. This is just the tip of the iceberg, of course, as Tesla will only be making more and more vehicles per year. If Tesla ends up providing insurance for about 1 million cars in its future fleet, the company could end up making $2 billion from the service alone. That’s a substantial amount, so much so that it’s enough to start a Gigafactory.
Featured Image Credit: Andres GE