Green light for Tesla auto insurance

In April the California Department of Insurance approved a new auto insurance product created by Tesla in partnership with Markel subsidiary State National. While full details are still yet to be released at the time of writing this article, electric vehicle and insurance industry forums alike have seen heated discussions of both the motivations behind the service, and the potential value for customers and the company itself.

Tesla’s customers have long been vocal about how the environmental and financial advantages of EV over other fuel options are offset by high auto insurance costs from traditional insurance companies. Despite Tesla’s efforts to offer their own products under the InsureMyTesla branding via Liberty Mutual, premiums remain high. This is reportedly due to the difficulty of finding replacement parts for the vehicles and a lack of qualified body shops, compared to petrol and diesel vehicles of a similar price.

When asked about Tesla’s insurance move, Geico owner Warren Buffett said car companies have tried and failed to move into insurance in the past, and he believed the likelihood of Tesla’s success in this area was as unlikely as insurance companies successfully moving into the automobile industry.

However, it is widely speculated that Tesla’s auto insurance will require driver usage and safety data to be reported to Tesla - a level of information these other car companies have not been privy to before. While the exchange of this information for premium discounts and other rewards might be enticing for many drivers, others have questioned how this might cross too far into ‘big brother’ territory, particularly for the tech savvy Tesla market. For a car which comes equipped with a literal ‘insane mode’, the possibility of refusal to pay a claim if car data showed a fraction over the speed limit is a concerning counteraction.

A breath of fresh air for Philip Morris brand portfolio

Following the Tesla insurance news came an announcement that tobacco-giant Philip Morris was venturing into life insurance coverage for smokers, vapers, and reformed-smokers in the UK. Smoking status is a key factor in underwriting life insurance policies throughout the industry, and non-smokers can often pay significantly lower premiums than smokers of the same age. Philip Morris is the tobacco company behind 130 brands of cigarettes sold globally, and its new life insurance brand Reviti is headed by Daniel Pender, a former UK board director at Zurich and Prudential with 25 years experience in the insurance industry.

Reviti claims to want to encourage people to live healthier lives, and will offer discounts to customers who quit their smoking habits. Those who ditch cigarettes in exchange for Philip Morris’ IQOS e-cigarette for three months or more will see a 25 percent discount, although switching to use any other vaping device will earn a discount of only 2.5 percent.

Policyholders who quit smoking and vaping completely for a year or more will see their premiums fall to half price. All Reviti customers will also have access to an app which offers 120 activities and programmes designed to help support their quit efforts, as well as access to free coaching support at Lloyds pharmacies. Reviti has plans to launch further policies which will incentivise other lifestyle improvements such as improving fitness and stress management.

The Reviti announcement has been met with criticism from anti-smoking campaigners. Excise taxes imposed by governments on smoking products are greatly affecting tobacco companies’ profit margins, giving even more incentive to move smokers on to their own heated tobacco alternatives, and Action on Smoking and Health CEO Deborah Arnott believes this is purely a sly marketing tactic, to get around the laws restricting any direct advertising for IQOS products in the UK.

Should we be paying attention here?

With both companies suffering financially in 2018, it is interesting how readily they have both turned to diversifying through insurance products. For incumbent insurers, this should only reiterate the significance of customer centricity, and the modern consumer’s desire for personalization. How does a customer segment feel disadvantaged by traditional insurance, and how can you change that perception?

Tesla CEO Elon Musk believes the company’s new insurance product will be, “much more compelling than anything else out there,” and the approved filing states that, “vehicles equipped with an autonomous feature option will be eligible for credits based on the level of autonomy of the vehicle.” Along with Tesla’s Autopilot software, which works to prevent collisions, enabling significant savings on insurance premiums might include monitoring data streams on a driver’s speed, following distance, and even alertness (measurable through steering wheel movement or eye tracking). One commentator pointed out the opportunity to also sell on-demand usage based insurance, with Tesla sensors able to identify when the insured period ended and offer additional coverage.

While Tesla vehicles need to be insured, life insurance is not currently seen as an essential purchase, and its cost is often overestimated by consumers. Philip Morris’ Reviti effort has been slammed by anti-smoking organizations, but it could prove very enticing to the smoking population themselves. Reviti’s homepage encourages anyone who’s “not perfect” to apply for a “fair” quote, an encouraging first impression for a new market of smokers that had likely labelled themselves “uninsurable,” turned off by the prominence of the smoking status question in traditional insurance applications.

Though Tesla’s insurance market initially looks to be limited to their existing customers, some insurance circles have speculated over whether success in auto insurance might see Tesla venture into the far more lucrative life insurance market. Only time will tell on that one - the one month estimate of the auto insurance release has passed without further news - but the brand recognition of Tesla may pique the interest of the underinsured millennial market, with a ‘cool’ factor traditional insurance companies just haven’t managed to achieve yet.

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