Elon Musk’s Tesla Motors (NASDAQ: TSLA) is considering another radical paradigm shift; offering its own auto-insurance policies. Insurance Business America reported that Tesla is talks with AXA General Insurance of Hong Kong and QBE Insurance in Australia to create policies for its vehicles.
The move may not affect Tesla’s American operations because the US auto insurance business is heavily regulated. Yet it is an interesting one because it goes against the prevailing industry model where insurance policies and vehicles are sold separately.
Tesla seems to be taking advantage of insurance aggregators; a kind of online insurance marketing widely used in the United Kingdom and a few other countries. Aggregators have not been very successful in the US because of the wide variety of regulations.
The idea is not as far out as you might think because carmakers do offer a kind of insurance in the form of warranties. It would be an interesting perk, particularly with leasing plans.
A New Business model for Insurance
Still one has to wonder why Tesla is so interested in insurance. Perhaps Musk thinks of insurance as a revenue stream. Insurance premiums as Warren Buffett; whom Musk admires, has demonstrated do generate a lot of float.
Another possibility is that the insurance industry might be afraid to insure some of Tesla’s more exotic experiments like self-driving cars. New technology is after all full of risks.
One thing is certain though it will probably be a long time before such insurance is offered in the USA. Each of the 50 states has its own set of insurance regulations that complicate the business. The cost of dealing with them can expensive, Alphabet (NASDAQ: GOOG) pulled the plug on its Google Compare auto insurance market because it was only able to get into four states.
It’ll be interesting to see if the Tesla insurance experiment works and if it will be repeated here in the United States.