Tesla Insurance Has Potential to Become a Top-10 Carrier: Morgan Stanley Analysts

According to Morgan Stanley analysts, Tesla Insurance, which began underwriting its own policies in three states last month, could pose a long-term challenge to traditional auto insurers.

Source: Repairer Driven News | Published on May 3, 2022

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Analysts believe that Tesla, cites Reinsurance News, becoming a top 10 auto insurance carrier is not a "far-fetched expectation," and that insurance premium forecasts for Tesla yield about $9.6 billion by 2031, assuming fairly conservative take-up rates by Tesla vehicle owners.

"Assuming the industry grows at a 3% annual rate, this would result in a market share of 2.8 percent, breaking into the top-10 in US P&C market share," analysts said.

Anaysts say that Tesla Insurance's future market penetration will be determined by its pricing sophistication and distribution strategy. They added that Tesla's telematics-based data collection, which is used to help determine premiums, could encourage safer driving, resulting in lower costs.

"We will closely monitor TSLA's underwriting results as it gains traction," the analysts said, referring to the ticker symbol under which Tesla shares are traded on the stock exchange.

Tesla CEO Elon Musk made a similar point about cost avoidance during the company's April 20 first-quarter earnings call, when it was announced that Tesla Insurance had expanded to Oregon, Virginia, and Colorado, as Repairer Driven News previously reported.

Tesla Insurance is now "a fully vertically integrated provider of insurance" in those three states, according to CFO Zachary Kirkhorn during the call. He stated that Tesla Insurance will be available to 80 percent of Tesla owners in the United States by the end of 2022.

Tesla Insurance was previously available in five states: Arizona, California, Illinois, Ohio, and Texas. Tesla offers policies with premiums based on real-time driving behavior in all states except California, where the practice is prohibited.

In addition to encouraging safer driving, telematics can provide data for engineering and software teams to improve vehicles, which should reduce claims costs and increase vehicle reliability, according to Kirkhorn.

"We see if there is a crash, large or small, and we try to figure out how much it costs." "And then think about how we can change the design of the car or the software to reduce the likelihood of that accident," Musk said.

Musk envisioned a scenario in which Tesla Insurance and the company's growing in-house network of collision repairers would collaborate with no friction between insurers and repairers.

"The customer experience is just vastly improved," Musk said, "because there's no argument when there's an accident." We'll repair it right away, rather than arguing with an insurance company, a claims adjuster, and then a collision repair center. And, in essence, this can be a nightmare. So we're attempting to transform a nightmare into a dream."

Customers in Texas, where Tesla's telematics-based insurance product, called Safety Score, debuted last fall, have been "quite positive," according to Kirkhorn. He said Tesla Insurance is now the state’s second-largest insurer of Tesla vehicles and is expected to become the largest by the next quarter.

Kirkhorn stated that "a lot of folks are reporting their stories of saving quite substantial amounts of money relative to their previous insurance" via social media. And that gives us a lot of hope."

Warren Buffett, whose Berkshire Hathaway conglomerate owns GEICO, raised serious doubts three years ago about Tesla and other automakers' ability to break into and profit from the auto insurance industry.

"It's not an easy business," he said at Berkshire's annual meeting in 2019. "I would bet against any company in the auto industry having an unusual amount of success."

"I don't think they'll make money in the insurance business," Buffett added of automobile manufacturers. While acknowledging the value of vehicle data, he claims that telematics is becoming more widely used, putting established insurers on par with automakers.