Editor's note: This article is from WeChat public number "慧保天下" (ID: insuranceforce), author: wisdom insurance world.
Tesla CEO Elon Musk, known as the "Iron Man", has always challenged people's imagination with his extraordinary ideas and actions, such as retrievable rockets, Mars spacecraft, and modifying the human brain, to name a few. Because of this, almost every one of his projects attracts the attention of the world's technology community.
In recent times, he has managed to attract the interest of the insurance industry as he has announced that he will be selling car insurance "Tesla Insure", claiming that Tesla car insurance can be 20% cheaper than regular car insurance.
"Iron Man" does car insurance, will he be the gravedigger of car insurance? From what I've seen so far, the page selling Tesla car insurance was online for only a few hours before it was taken offline in a hurry, and although it went back online after a few hours of maintenance, some car owners have reported that the premiums calculated on the basis of it are even higher than those of other companies.
Nevertheless, Tesla began to sell car insurance but had to trigger a high degree of concern in the industry, Tesla represents the car manufacturer is located in the kernel of the automobile industry chain, plays a leading role, for the automobile hardware is to grasp the absolute right to speak, and car insurance is just a link in the huge industry chain.
01 Tesla Takes Insurance Brokerage License, Claims Product Premium Discounts As High As 20%
On August 29th, Beijing time, Tesla announced that it will be the first to launch its own insurance program "Tesla Insure" in California, and said that the cost of insurance will be 20% lower than the industry peers.
The product description on Tesla's website shows that Tesla Insurance is designed to provide Tesla owners with discounts up to 20%-30% for comprehensive insurance and claims management. Owners can pay the premium on a monthly basis at no other cost. If owners are not satisfied, they can cancel or change their Tesla Insurance at any time.
"Based on the company's sufficient knowledge of the technical safety and repair costs of Tesla vehicles, Tesla Insurance is able to provide lower-cost coverage to many eligible owners", Tesla explained in response to discounts of up to 20% compared to traditional insurance products. A Tesla executive also said that the company will refer to owners' personal data as the basis for pricing the company's auto insurance products.
The news of "Tesla sells car insurance" triggered the market's attention as soon as it was released, but unfortunately, less than four hours after it officially launched the insurance service on its official website, it was taken offline, with the official website showing that "the algorithm is being upgraded".
According to foreign media reports, this is mainly because some owners found that after the Tesla website to calculate the rate, the premium is even higher than other companies. After hours of maintenance, Tesla re-launched the insurance service page, but there are still owners reflecting the existence of the problem of high costs, does not seem to reach the Tesla claimed "the effect of reducing fees 20%-30%."
Back in April 2019, during Tesla's Q1 earnings analyst meeting, CEO Elon Musk first revealed that Tesla was considering an insurance product that would come out as early as May. And at the annual shareholders meeting in June, Musk added that the insurance service planned for May was actually still a work in progress, "We're very close to being able to implement this business, but before we can do that, we need to close a small acquisition and we need to write some software."
The implication seems to be that Tesla is seeking to acquire an insurance license so that it can launch its own insurance products, but instead of acquiring an insurance company license, it is first acquiring an insurance brokerage company license to qualify to operate an insurance brokerage business, as many domestic tech companies do.
According to Reuters, while Tesla did not disclose its partners, the California Department of Insurance website shows that Tesla has obtained an insurance broker's license to sell insurance products from American National Insurance Company, a subsidiary of Markel Corp.
Wisers checked the service agreement in the insurance section of Tesla's official website, and it shows that the name of the company is "Tesla insurance Service Inc.", which means that Tesla does have an insurance broker license.
Also according to the official website of Markel Corporation, founded in 1930 and headquartered in Virginia, USA, Markel Corporation is a financial holding company that underwrites and sells specialty insurance products in the United States and internationally.
02 Tesla racks up over $1 billion in H1 losses, pushes insurance business or to ease financial pressure
In fact, this sale of car insurance is not Tesla's first foray into car insurance, as it has been continuously involved in the design of insurance products for its vehicles since 2016.
In 2016, Tesla launched a customized insurance plan, Insure My Tesla, underwritten by its appointed major insurers around the world, with partners in Hong Kong, China and Australia being AXA Insurance and QBE Insurance Group Australia, respectively. This is the first step for Tesla to really test the insurance business.
How has Tesla's philosophy of running an insurance business shifted from simply partnering with an insurance company for insurance to acquiring an insurance brokerage license directly?
In June 2017, foreign media had reported that Tesla had a dispute with auto insurance provider AAA.AAA said it had decided to raise Tesla's auto premiums by 30% based on the results of an analysis by the American Highway Loss Data Institute and other data sources, which showed that the frequency of claims, as well as the cost of claims, was unusually high for the Model S and Model X models compared to their vehicle class.
To this, Musk responded that the cost of insuring the two models is 5% lower than other luxury models, and "if Tesla owners have higher insurance premiums, it's a good solution to change the insurance company." Therefore, in 2017, Tesla optimized and adjusted the cooperative insurance providers.
By 2018, Tesla even hired Alex Tsetsenekos, a former executive of Liberty Mutual, an American insurance company, to be in charge of the development of Insure My Tesla's insurance business, and the American insurance company also submitted an application for a Tesla insurance plan to the relevant authorities as a result.
In April 2019, California insurance regulators approved the Tesla insurance business applied for by American National Insurance Company.
Some sources speculate that Tesla is actively promoting insurance services or to ease financial pressure. Data show that Tesla's revenue in the first half of 2019 was about $10.8 billion, but the net loss has exceeded $1 billion. Among them, the first quarter of 2019 revenue of $4.5 billion, a net loss of $700 million, while in the second quarter, revenue of $6.3 billion, a loss of more than $400 million.
03 Automakers selling insurance, the real gravediggers of the car insurance business?
Tesla opened to sell car insurance news, that triggered a wide range of concerns in the insurance industry, on the one hand, focusing on the development of new energy car insurance, and on the other hand, focusing on the automaker to sell car insurance directly.
The involvement of automakers in the insurance business is not new to the domestic insurance industry. in June 2011, Guangzhou Automobile Group led the establishment of Zhongcheng Automobile Insurance Company Limited has been established, becoming the first professional automobile insurance company led by automakers in China.
One year later, in June 2012, Xin'an Automobile Insurance Co., Ltd. initiated by a number of subsidiaries of China FAW Group was also formally announced.
Since the establishment of Zongcheng auto insurance and Xinan auto insurance, the discussion on what impact the direct operation of insurance business by automobile manufacturers will bring to the insurance industry has never stopped, and in the view of some people, these automobile manufacturers and their insurance companies and insurance intermediaries will really become the gravediggers of auto insurance.
The most important reason is that automobile manufacturers occupy a core position in the automobile industry chain, and supply, sales and service all provide services for the core, while insurance is only one of the many services generated around the automobile. In this case, automobile manufacturers do insurance, has always been regarded as a major "threat" to the auto insurance industry, especially in the car networking technology is gradually popularized, automobile manufacturers due to the mastery of the right to speak of the hardware, compared with the insurance company obviously has a stronger set up a car networking operating platform advantages, more likely to play a leading role.
An illustration is that car dealers have actually taken a considerable position in the car insurance business due to the large number of customers they hold as well as the excellent car insurance sales scenarios, not to mention the car makers who are further up the chain.
However, for the time being, at least the two specialized auto insurance companies in the country have not shown enough "threat".
As of the end of 2018, Zhongcheng Auto Insurance realized original insurance premium income of 1.299 billion yuan, a year-on-year growth of 2.35%, lower than the industry's overall year-on-year growth rate of 11.52%. Xinan auto insurance, despite the high growth rate of 24.42%, was established 6.5 years ago, and its original insurance premium income in 2018 was only 628 million yuan, still only a small-scale insurer.
Some foreign professionals are not optimistic about Tesla's attempts to get out of trouble through insurance, "stock god" Warren Buffett said at Berkshire Hathaway's shareholders meeting, the probability of success for automobile companies venturing into the insurance industry is about the same as that of insurance companies to enter the automobile industry, and Tesla may get into trouble because of venturing into the insurance business. Tesla may be in trouble for venturing into the insurance business.
