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Morgan Stanley analysts: Tesla Insurance has potential to become a top-10 carrier

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Collision Repair | Insurance
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Tesla Insurance, which last month began underwriting its own policies in three states, could pose a challenge to traditional auto insurers in the long term, according to analysts at Morgan Stanley.

As reported by Reinsurance News, analysts said that Tesla becoming a top 10 auto insurance carrier is not a “wild expectation,” adding 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 continues to grow by ~3% annually, this would yield a market share of 2.8%, cracking the top-10 in US P&C market share,” analysts said.

They said that Tesla Insurance’s future market penetration will depend on pricing sophistication and distribution strategy. Tesla’s telematics-based data gathering, used to help determine premiums, could encourage safer driving, leading to lower costs, they added.

“We will monitor TSLA’s underwriting results closely as it gains more traction”, the analysts said, using the ticker symbol under which Tesla shares are traded on the stock market.

As Repairer Driven News reported, 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.

In those three states, Tesla Insurance is now “a fully vertically integrated provider of insurance,” CFO Zachary Kirkhorn said during the call. He said Tesla Insurance is expected to be available to 80% of Tesla owners in the U.S. by the end of 2022.

Prior to the most recent approvals, Tesla Insurance was available in five states: Arizona, California, Illinois, Ohio, and Texas. In all but California, where the practice is not allowed, Tesla offers policies with premiums based on real-time driving behavior.

In addition to encouraging better driving, telematics can provide data for engineering and software teams to improve the vehicles, which, in turn, should lower claims costs and increase vehicle reliability, said Kirkhorn.

“We see if there is a crash, large or small, we sort of see exactly what that cost. And then think about how can we change the design of the car or the software in order to minimize the probability of that accident,” Musk said.

Musk painted a scenario where Tesla Insurance and the company’s expanding in-house network of collision repairers would work together, with no friction between insurers and repairers.

“The customer experience is just vastly better,” Musk said, “because when there’s an accident, there’s no argument. We’ll repair it immediately, as compared to arguing with an insurance company and then a claims adjuster and then a collision repair center. And this can be a nightmare, basically. So we’re trying to turn a nightmare into a dream.”

In Texas, where Tesla’s telematics-based insurance product, called Safety Score, debuted last fall, customer reception “has been quite positive,” Kirkhorn said. 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 said that, through social media, “a lot of folks are reporting their stories of saving quite substantial amounts of money relative to their previous insurance. And so we’re quite encouraged by that.”

Warren Buffett, whose Berkshire Hathaway conglomerate owns GEICO, three years ago cast serious doubt on whether Tesla and other automakers can break into the auto insurance industry and turn a profit.

“It’s not an easy business at all,” he said during Berkshire’s 2019 annual meeting. “I would bet against any company in the auto business being any kind of an unusual success.”

“I don’t think they’ll make money in the insurance business,” Buffett added about carmakers. While acknowledging the value of vehicle data, he said telematics is being widely adopted, putting established insurers on a par with automakers.

More information

Tesla Insurance expands to 3 more states, begins underwriting its own policies


A Tesla Model S. (Provided by Tesla)

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