One of the remarkable things about Elon Musk's businesses is that they routinely have other equally successful sub-business. For example, SpaceX, his space exploration company, runs a satellite internet business called Starlink. Another of its company's sub-businesses that is relatively unknown but could end up being another game-changer is Tesla Insurance.
What is Tesla's car insurance business? And what chance does it stand against the established players like Allstate and Geico? Keep reading this article to find out.
Tesla's car insurance business
Tesla launched its insurance business in 2019 in California. From its beginning as a broker for policies underwritten by State National Insurance Company, it has expanded both its services and coverage areas. It now has a presence in Texas, Illinois, Washington, and China.
Why did Tesla get into the auto insurance business?
The auto insurance industry is worth $288.4 billion and has maintained an average annual growth rate of 2.7% over the last five years, so it makes sense that Tesla wants a slice of the pie too. However, there is one major reason why Tesla is throwing its hat in the ring.
The reason is that Tesla can help lower insurance costs for its cars through the use of its data and scales of economy. Insurance companies have settled for charging Tesla drivers the most for insurance, discouraging some buyers. Tesla can bring the costs down and make its vehicles more attractive by stepping into the market.
How does Tesla's auto insurance work?
Tesla's primary goal is to bring down the cost of insurance for its drivers, thus reducing the total cost of ownership. To achieve this, the company has promised to apply monthly premium discounts based on your safety score. Tesla calculates this score in real-time based on your driving pattern. It will take into account how aggressively you take turnings, brake, and following distance.
You can save up to 60 percent on your premium, depending on your score. This should motivate Tesla owners to drive more responsibly. This idea is not new to the Insurance industry and has been implemented most recently by Progressive Insurance through its Snapshot program. However, unlike Progressive, Tesla does not require the user to install an additional device to their vehicles which is very prone to failure.
What is the outlook for Tesla's auto insurance business?
Musk has suggested that the insurance business could be worth between 30 and 40 percent of its car business. With a valuation of over $1 trillion, this sub-business could be worth up to $400 billion in the future. However, Musk is known for his over-optimistic forecasts.
Industry experts do not expect Tesla's auto insurance business to pose a threat to incumbents in the industry any time soon. However, if EV history serves as a reminder, Tesla will probably have the last laugh.