Why Tesla and GM want to be big in the car insurance business

For consumers who have found that costlier insurance is just one of the expenses that make electric cars trickier to love, this is the year when relief may be coming.

Tesla says its company-backed insurance, now on the market in just five states, may reach 45 by the end of the year. GM, which revived its old GMAC insurance unit as OnStar Insurance in 2020, says it hopes to hit $6 billion in yearly insurance revenue by decade’s end.

Auto insurance is unlikely to ever be the largest business at either company, or even close. But insurance is shaping up as a way that the finance side of automakers’ business can help drive innovation and make adoption easier – as the data generated by the cars themselves is captured to deliver lower insurance prices and, automakers hope, cement customer loyalty.

Wedbush analyst Dan Ives says Tesla could insure 300,000 cars by 2025  “This is a 2024-25 initiative, but they are laying the foundation,” Ives said. 

EVs are expensive to insure because their off-the-line speed makes traditional insurers wary, according to CFRA Research analyst Garrett Nelson. And partly because relatively few mechanics know how to fix them, they can be expensive to repair after an accident.

“Tesla is more comfortable with its own vehicles,” Nelson said. “And they’ve created a trend. GM and others are looking at the same thing.”

EV makers say they are being motivating by the opportunity to close the insurance gap with more data. The idea is that so much more about the cars is measured – especially as automakers use EVs as test beds for systems that are building toward fully self-driving vehicles – that insurers have much better data about the risk each driver poses, and can use it to contain costs. 

At Tesla, the insurance is now available in Florida, Texas, Illinois, Ohio and California. The company hopes to have its coverage available to 80% of U.S. customers by the end of the year, chief financial officer Zach Kirkhorn said during the company’s latest earnings conference call last month, though state insurance regulations are a factor. 

The company boasted about its early success in Texas, where it launched last fall. Kirkhorn said the cars send Tesla so much information about how they are being driven – letting the company send guidance back to drivers – that the real-time feedback results in “quite a bit lower” accident rates. 

“If they drive safe, their insurance cost is less, so they drive safer,” chief executive Elon Musk said. “It encourages Tesla Insurance with informatics and real-time feedback encourages safer driving and rewards it monetarily. It’s great.”