Let’s start off with a non-exhaustive list of what driver/car information Tesla collects or has access to:
- Driving Speed
- System health
- Short videos from 8 cameras
- Data from 12 ultrasonic sensors
- Credit information from application
- Credit score
- Credit history
- Employer location and job details
- Date of birth
- SIN/Social Security
- Remote analysis
- Browsing history
- Music history
- Navigation history
- Charging station
- Charge rate
- What kind of charger was used
- Supercharger/Destination charger history
That’s the data, but what can Tesla actually learn or understand about the risk of the driver? Well let’s use our imagination here
- Does the driver
- Frequently accelerate rapidly?
- Follow too closely behind other cars?
- Drive on major highways to get to work?
- Drive home from bars on weekend nights?
- Go on long road trips often?
- Service their vehicle regularly and in compliance with the owner’s manual?
- Drive out of country/province/state often?
- Listen to loud music while driving?
- Talk on the phone while driving?
To drive home exactly how much Tesla knows and understands its drivers, I’d like to take you through two actual scenarios (features) that I have witnessed
- It’s a cold winter’s day and I’m getting into my car, ready for the bitterly cold steering wheel and waiting for the car to warm up. Typically it takes a while for an electric car to warm up in -20 temperatures because the batteries don’t operate efficiently when too cold. To my surprise, the heat was already on, along with the seat warmer, and the battery heater. The car is already drivable, and quite comfortable. You might be saying “who cares, most cars have remote starters now” to which I would answer that I did not start any of this. Tesla knows when I typically begin my commute, and takes care of warming the car up automatically for me.
- Getting into my car after leaving work a little later than usual, the screen turns on and notifies me that it has found a faster way home from work. It knows I’m at work, it knows I’m going home, it knows my typical route home, it knows that traffic is heavier than usual, and it knows a better route home. I didn’t tell my car any of this, it assumed everything from previous history, and merges that with real time traffic data.
Why Tesla Will Need to Insure its Own Cars
AAA has already come out stating that Teslas require higher premium to cover higher claim frequency and severity.
“AAA is raising rates on Tesla vehicles based on data showing that the Model S and Model X had abnormally high claim frequencies and high costs of insurance claims compared with other cars in the same classes.” – AutoNews.com
If the frequency and severity of claims for a specific make and model are higher than the rest of your book, you increase rates to cover the risk. This only makes sense. What’s troubling is that Tesla believes that this study is highly flawed, and does not represent the reality of their cars on a whole.
The problem is that actuarial models may not account for the unknowns of such a new and innovative approaches to automobile safety. Teslas are notoriously expensive to repair. Parts are often scarce as Tesla has a hard enough time producing parts for its new fleet, let alone replacement parts. Furthermore, the high tech design of Teslas, including the sensors, cameras etc. make repair more difficult, and specialized. Lastly, the company has made a number of design decisions around safety first, rather than ease of repair. This means that simple fender benders can result in a total loss if the node happens to get damages. In this link you will find an actual driver’s description of a simple dent in his bumper resulting in a write off of his $100,000 car. For a little more information, click here to see the actual patent Tesla owns for its sub-frame design.
Elon Musk, Tesla’s CEO, has already said that they will get into the insurance business if the need arises.
“Not to the exclusion of insurance providers but if we find that insurance providers are not matching the insurance proportionate to the risk of the car, then if we need to, we will in-source it. I think we will find that insurance providers do adjust the insurance cost proportionate to the risk of a Tesla.” – Electrek.co
The insurance industry is risk averse, relies on proven actuarial data and underwriting/claims experience to make decisions. The introduction of self-driving cars alone will cause a mighty stir in the industry, as it tries to react to a new technology that doesn’t fit within the well designed box of an auto policy. Tie that in with the (perceived) increase of frequency and severity with these cars, and we will see raising rates. If Tesla decides to take on insuring its own vehicles, with access to a vast amount of data that a traditional insurer could only dream of, we will see the rating of an auto policy move from an art to a science. Once this happens, and Tesla proves profitable, other manufacturers will follow suit. In fact, because Tesla is a new entrant already into a mature auto industry that is traditional and tired, we will see other car manufacturers clamoring for additional sources of revenue to make up for their loss in market share.
The insurance industry has become complacent, seeing many previous new entrants, like big banks, fail. This is because those previous entrants tried to do what insurance companies have been doing, just a little bit better. I would argue that if Tesla approaches insurance the way that it approaches auto manufacturing, product design, charging network development, and marketing, the insurance industry is in for a rude awakening. And for those that think that this is just one car company, what can they possibly do? Many are predicting that Tesla will do to the car market what Apple did to the cell phone market. Rapid acquisition of a large proportion of the market.
In my next post, I will dig a little deeper into how Tesla could use this data, along with its experience in artificial intelligence, to hone in on the science of risk assessment and eventually eliminate the need for car insurance altogether. Stay tuned.