Good news for safety-conscious Texan drivers. Tesla has launched a new car insurance initiative that uses real-time driving behavior to calculate premiums. This will primarily reward good drivers with discounts rather than punishing bad drivers. It is currently only available for Texan Tesla drivers.
The company only recently launched its own insurance, and we are now seeing the advantages. Tesla does not need to install an external device in drivers’ cars to assess their driving behavior. The system uses data collected by the technology already incorporated in the car’s design.
You may have heard of car insurance discounts before, but Tesla’s discounts differ fundamentally. Here’s why.
Car Insurance Discounts
According to The Insurance Bulletin the standard insurance discounts are based on current and past information which would allow the insurance company to assess your risk.
Passive restraint discounts reward drivers who drive cars with factory-installed airbags and seat-belts, known as passive restraint systems. These systems save lives every single day, and people injured in car accidents tend to have much lower medical bills.
Full payments discounts and electronic funds transfer (EFT) discounts reward drivers who pay six months upfront or use EFT payments to pay. New customer discounts reward new customers.
There are also discounts for people who have clear driving records, with no accidents or DUIs.
However, all of these discounts are circumstantial by the time your premium is calculated. You can do nothing to change how you drove in the past. Furthermore, your past driving record may not represent the way you drive. People change, and many drivers who have experienced an accident drive more safely thereafter. Not all accidents are attributable to bad driving either. A person may have a freak accident for any number of reasons.
That is why Tesla’s initiative is different to other discounts. The calculations are made in real time. You get rewarded for how you choose to drive, not punished for how you drove in the past.
How does Tesla calculate safe driving?
Tesla’s safety score is based on 5 metrics:
- Forward Collision Warnings per 1,000 Miles
- Hard Braking
- Aggressive Turning
- Unsafe following distance
- Forced Autopilot disengagement
As you can see, the safety score is not based on simple matters like sticking to the speed limit. Factors such as aggressive turning and hard braking encourage drivers to change the way they drive, not just the speed. The same is true when it comes to following distance.
Tesla’s own system that provides collision warnings comes into play as well, rewarding you for not putting yourself in dangerous situations.
It is, of course, not foolproof. Sometimes, hard braking is inevitable no matter how much of a following distance you keep, simply due to circumstance. However, because the system rewards safe drivers rather than using a model to punish unsafe drivers, the system remains fair.
If you’re wondering just how big the discounts are, the example provided by Tesla shows a premium that could be as high as $130 a month and as low as $83 a month. The high end, according to drivers actually using the system, is slightly higher than what they would pay at other insurers. The low end, however, is significantly lower.
This will make Tesla’s insurance particularly appealing to Tesla drivers. Of course, it is only available with Teslas. That said, it may just catch on.
Will It Catch On?
If Tesla was just any insurance company, we could certainly expect the innovation to catch on. After all, many drivers would flock to them for the chance to earn discounts on their premiums. However, Tesla insurance is only available to Tesla drivers, and so other insurance companies are not at risk of losing a lot of business.
The question of whether it will catch on depends on the data that emerges from the system. In theory, a lower number of accidents is more than enough motivation for insurance companies to implement a similar system.
However, money talks, and insurance companies are unlikely to implement a system that loses them profits, even if it makes the roads safer. Tesla will be losing out on premiums due to their discounts. The model assumes that the decrease in accidents will more than make up for any losses.
This may be the case for Tesla, but even if the data supports this, it will not necessarily sway other companies. Tesla has the advantage of not having to install external devices in their cars. They can implement the system without any extra layout of cash on their side or the customers’ side.
Regular insurance companies would have to design their own system as well, which could be a costly process. They may calculate that such a system will save them money, but might not consider it enough to justify the layout of money and time to create it.
The reality is that if one big insurance company jumps on the idea, the others are likely to follow. It remains to be seen if any of the insurance companies will be game to use such a system, especially while it is still in its infancy.
Capitalism is at its best when it benefits customers in their day-to-day lives while profiting the companies involved. If Tesla’s system leads to fewer accidents, it does not matter that their priority is to make money. If this leads to other insurance companies following their lead, all the better.
For now, only Texan Tesla drivers can get real-time insurance premium discounts. However, we may just see this catch on in the near future.