Even actuaries can and will be revolutionary
‘We are looking for revolutionary actuaries for Tesla Insurance’, Elon Musk tweeted this summer. His tweet got almost 20.000 likes, not bad for a tweet about actuaries. But most of all it signals how the insurance industry will become part of the digital transformation. And … how recording every move of the driver can make driving safer and insurance cheaper.
Most people have a love-hate-relationship with the CEO of Tesla. Some love to hate Elon Musk, others hate to love him. His ideas often look disconnected, but there’s also always a smart business plan and a realistic vision of what the future might bring. The same goes for Tesla Insurance. It is as well a solution for short term problems, as a vision about how insurance fits into the future of mobility and energy.
One year before Musk’s tweet, in August 2019, Tesla started selling its own car insurance. The selling is done via an existing insurance company, State National Insurance, but the actual insurance work (the writing of insurance policies and the risk management) is done by Tesla Insurance Services. At the start only Tesla-owners in California could subscribe, with a goal of broadening the service to other states soon after.
Tesla promised premiums that would be 20 or even 30 percent lower than those of regular insurance companies. “Where we want to get to with Tesla Insurance is to be able to use the data that’s captured in the car, in the driving profile of the person in the car, to be able to assess correlations and probabilities of crashes and be able to then assess a premium on a monthly basis for that customer’, Zachary Kirkhorn, CFO of Tesla said.
Tesla would use the information it has on its vehicles and the drivers to offer a more competitive pricing. As no one else, Tesla can judge the value of its safety features and of the advantages of driver assistance (anti-theft, stability control, autopilot, ...). In a first phase, Tesla uses ‘anonymized, aggregated data’ of the behaviour of drivers. So no individual information about specific drivers, but the global information on where the risks are with Tesla-cars.
This phase is still work in progress. When the insurance was launched, things didn’t go as planned/hoped for. Instead of 20% discount, many interested Tesla-drivers got a quote that was higher than what they pay at third party-insurers.
And those prices from ‘regular’ insurers are rather high for Tesla drivers. The first Tesla models are expensive cars, and repairing them is costly because of the incorporated technology. For non-Tesla-companies it’s difficult to judge what the added value of the Tesla-technology is in relationship to the risk and price of car accidents.
Therefor it’s not unrealistic to expect the premiums of Tesla-insurances to drop well below those of competing insurance companies. Tesla is improving its telematics (information gathering technology in cars). This will lead to better information (on vehicles, safety, repair costs, technology, …), to better calculate the risks.
Recently it was uncovered how a camera inside the Tesla-cars can contribute to this improved information. In several Tesla-models, there’s a camera facing the driver. At first the company said the camera’s were not yet functioning. Their use would be something for the future, for example when self-driving Tesla’s would be used as ‘robo-taxi’s’, taxi’s without a driver. The internal camera would than be used to prevent vandalism by the passenger, for example.
But recently the drivers of the cars were asked if they would be willing to have the camera turned on, in an effort to collect information that would lead to more safety. A hacker unveiled that Tesla is looking at how the driver behaves: does he look at his smartphone, is he wearing sunglasses, are his eyes on the road, … It’s useful to know what and how the driver was doing moments before a crash/accident. And it reminds the driver, he/she has his/her part of the responsibility.
The information (now aggregated, later possibly individual) can be used to make cars safer. It can reduce the cost of repairing a car (by adjusting the design of a car). And it can make the insurance premium more competitive, by taking into account how much and how well an individual car owner drives his/her Tesla.
The insurance branch of Tesla will also help develop the car production. The development of driver-assist and certainly of self-driving technology, is hindered by mistrust in the heads of many. Is this as safe as human drivers? What if things do go wrong and an accident occurs? Who’s responsible for what? By taking the insurance side of things in his own hands, Elon Musk gets more comfortable in the driver’s seat (pun intended).
Musk created his own competitive advantage by coupling the challenges in society concerning mobility and those concerning energy. He’s now adding the insurance sector to it.https://twitter.com/elonmusk/status/1286450016803069952