Some thoughts on the latest moves by Tesla on its behavioural based car insurance cover, from Rory Yates, Global Strategic Lead at EIS:
Tesla driving forward with its insurance plans shouldn’t really come as a surprise. Its ecosystem-based business model (often incorrectly referred to as “vertical integration”) and CEO are both highly consumptive.
This model is predicated on increasing the knowledge of your customer and acting on it in the best interests of Tesla and its customers.
When broken down further, this move is one I’ve been anticipating in the auto space for some time. Moving from car ownership-based models to lease, lease purchase and even car share models sees car manufacturers competing on loans and payment schemes.
Creating cars that are connected and data driven made them software businesses as well. So it’s logical they evolve beyond manufacturers to become customer-centred providers of personalised transportation.
The next step in this process is to own and control as much of the lifecycle as they possibly can. Which includes insurance.
The advantage was always gaining greater control over repair expenses and decisions regarding total vehicle losses, ensuring repairs adhere to its standards while potentially reducing costs.
The critical question is, why is insurance something Tesla feels comfortable entering. It’s risky, capital intensive and complex. That doesn’t sound particularly attractive.
Well, the sad truth is, there’s lots of reasons. Firstly, insurers aren’t built around customers, so they struggle to build more integrated, adaptive and intelligent products and services. Therefore, it makes sense for car manufacturers to sideline the insurer and do it themselves. EIS has customers changing this in areas like Payment Protection, but wider examples are few and far between.
The second reason is that insurance is very low on trust. Lower even than banks in 2008. This substantially reduces the barriers to entry. Tesla customers probably have low loyalty to their insurer, and when offered a “value-added” insurance proposition there’s a lot less reasons to say no than there should be.
I agree with insurance analyst Adam Denninger’s viewpoints in Insurance Business’s article. Insurers are trying to do this. However, in legacy technologies, with policy-centric business models they are substantially wedded to focus their efforts on reducing costs and maximising distribution. Thus competing on price.
This is a far cry from models based on data fluidity, aiming at autonomous, intelligently repairable, integrated and usage based, dynamic propositions.
Tesla’s next moves are likely to include risk-mitigation, AI-based parts and repair network planning, better ways to allow the car to directly adapt to risk requirements and cover, and so on.
The real truth is, you can’t fail if you are in hyper-effective learning cycles, and you can innovate and iterate at a speed that few insurers can match.
Things won’t be easy, and insurance throws curve balls that car manufacturers will struggle with. Insurers need to stay close to this move, learn from it and take a long hard look at their own business models.
In reality, they will also need to ask themselves what can we offer car manufacturers that mean our insurance offerings are modular producer based, The likely model for this is to become the PayPal of insurance embedded into cars. Making insurance seamless, dynamic and capable of integrating its services into the manufacturers ecosystem.
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