Tesla and GM Strategize for Expansion in New Auto Insurance Landscape

As electric vehicle (EV) enthusiasts grapple with the added expense of pricier insurance, a glimmer of relief is on the horizon this year. Both Tesla and GM have set their sights on a new frontier in the insurance business, aiming to transform it into a catalyst for innovation and smoother EV adoption.

Tesla, having introduced its in-house insurance in just a handful of states, plans to extend coverage to a total of 45 states by year’s end. Meanwhile, GM, which resurrected its GMAC insurance arm as OnStar Insurance, envisions amassing a substantial $6 billion in annual insurance revenue by the close of the decade.

While insurance won’t become the primary focus for either automaker, it emerges as a mechanism through which the financial arm of their operations can drive progress and enhance customer loyalty. By harnessing the data derived from their vehicles, automakers can leverage it to offer more competitive insurance rates, thereby facilitating wider EV adoption.

According to Dan Ives, an analyst at Wedbush, Tesla could potentially insure around 300,000 cars by 2025, underlining the foundation being laid for this initiative. EVs traditionally carry higher insurance costs due to their impressive acceleration, causing hesitancy among conventional insurers. Additionally, the scarcity of skilled mechanics for repairs contributes to the post-accident expense.

Nelson of CFRA Research explains that Tesla’s comfort with its own vehicles, coupled with its pioneering efforts, has set a trend that GM and other automakers are keen to follow. The motivation for EV manufacturers lies in the prospect of narrowing the insurance gap through data. The wealth of information garnered from EVs, especially as testing grounds for self-driving systems, allows insurers to better assess risk and mitigate costs.

Currently available in select states, Tesla’s insurance offering is expected to encompass 80% of U.S. customers by year-end, according to CFO Zach Kirkhorn. Tesla’s success in Texas, for example, stems from its cars transmitting extensive driving data, enabling real-time guidance and resulting in notably lower accident rates. This dynamic encourages safer driving practices, which CEO Elon Musk hails as a great achievement.

GM is also moving swiftly, collaborating with American Family Insurance on a safe driving behavior algorithm. Approvals for the data systems are anticipated in the first half of 2022, with a focus on offering a more personalized insurance product. This venture not only bypasses the substantial advertising costs incurred by the insurance industry but also streamlines claims processing, potentially settling claims nearly instantly.

Although traditional insurers have embraced telematics over the years, utilizing wireless phone apps for data collection, GM and Tesla are poised to leverage the cars themselves to enhance accuracy. While Tesla’s insurance ambitions may initially serve as a secondary concern, they hold the potential to become a pivotal component in promoting EV adoption.

The ultimate goal for Tesla is to achieve a 30-40% reduction in insurance costs, cementing its role in making EV ownership more accessible and economical. As both Tesla and GM set their sights on this evolving landscape, the fusion of data-driven innovation and insurance services could very well reshape the future of automotive ownership.