Many automakers have insurance companies bearing the same name, but Tesla Insurance could disrupt the entire auto insurance industry.
Telsa has a history of being a disruptive force in the automotive market. First, the company proved electric vehicles could be viable forms of transportation for most drivers and not simply gadgets and novelty items. Now, this company is ready to invade the insurance industry by using its technological prowess to offer innovative solutions to vehicle coverage. This disruption could be impactful, but Tesla Insurance has a few challenges to overcome first.
Data Privacy Matters
Tesla utilizes vast amounts of data in its vehicles and the new insurance strategy relies on this data as well. If the company is successful, traditional insurance companies might see their stock prices plumet, but people are generally concerned about privacy and this could be a difficult issue for an insurance company that relies on massive amounts of data being shared and used. Using this data opens up personal information to data breaches and privacy violations that are at the forefront of public concern.
Currently Established Companies
Entering an industry in which many companies are already established and have been for decades, some for at least a century. This makes entering the insurance market extremely difficult for Tesla Insurance. That said, when Tesla began making electric cars that could drive farther than other EVs, they had to enter the automotive industry, learn to mass-produce vehicles and understand the competition. The company successfully jumped over each hurdle, despite stumbling along the way, and will probably find solutions that work to the challenges of entering the insurance industry.
An Economically Sensitive Market
Economic fluctuations have a massive impact on the insurance industry. When the economy is on a downturn, many consumers stop spending on insurance and other non-essential services. This could be a serious challenge for a company trying to add another profitable venture to its portfolio that could become nonprofitable when the economy is on a downward slide. This challenge isn’t something that Tesla can control, and it could be a serious issue with investors who don’t see the point of going up against established competition in a volatile industry.
Scaling Will Be Problematic
Tesla isn’t known for taking the slow, methodical approach to anything. The plan for the new Tesla Insurance arm is to scale quickly, which could be a huge challenge. As the customer base grows, the demand for efficient claims processing will also grow. This has been a serious challenge in the automotive industry, with many projected dates being pushed back for each of Tesla’s electric vehicles. While the company might promise services customers desire, anyone considering this new insurance company might want to be cautious.
Extremely High Repair and Replacement Costs
Tesla vehicles utilize massive amounts of advanced technology, which can be extremely beneficial most of the time. Items that often require dealership service visits for other companies are handled through over-the-air updates in a Tesla vehicle. That said, these vehicles are extremely expensive to repair and replace, which means costs for collision repairs will be much higher than for other vehicles. This could lead to a much higher percentage of Tesla vehicles being marked as total loss models than other car brands.
Accurate Risk Assessment
Predicting risks associated with EVs and future autonomous driving technology isn’t easy. If the risks are properly assessed, Tesla Insurance could present huge losses for the entire company. This would also lead to massive dissatisfaction among policyholders. Although Tesla EVs have advanced sensors and cameras, they are on the roads with vehicles that don’t, and that can still mean collisions and issues. Additionally, sensors, cameras, and computerization can fail, especially when in remote areas with limited access to required data.
Regulations Are Always In The Way
America is the land of the free but also the land of the regulated. Regulations are in place to help keep things fair, safe, and protected, but that also means companies must adhere to these regulations. In addition to federal regulations, each state has its own set of rules to follow as well. This makes it challenging and could create roadblocks for Tesla in building its insurance arm as quickly as it would like to. As the insurance company looks to become established in each state, there will be additional regulatory hurdles.
Tesla Insurance may eventually have an impact on the stock prices of already established companies, but not until it can become an established company.
