Will Tesla Owners Have to Pay More for Insurance?

Tesla owners with insurance policies from AAA may see their auto insurance rates go up. In the coming months, AAA plans to raise auto insurance rates on Tesla vehicles by 30 percent. AAA based its decision to hike rates on data provided by Highway Loss Data Institute (HLDI). The HLDI conducts studies on behalf of the Insurance Institute for Highway Safety (IIHS), a nonprofit organization that is dedicated to reducing accidents.

In the HLDI study, 2014-16 vehicles were divided by weight, size and competing models. Vehicles such as the Mercedes-Benz E-Class and Volvo XC70 were compared to Tesla’s Model S and Model X. The study concluded that the cost and amount of claims made by Tesla owners are “higher than average.” The spokesperson for the Insurance Institute for Highway Safety stated, “The rates aren’t abnormally high. They are to be expected based on results for competitors.” The study by HLDI also found that cost of repair for luxury vehicles is 50 percent higher than for average models and the total claim is 13 percent higher. However, the Tesla Model S’ repairs cost 100 percent more than average, in addition to 46 percent more claims. The Tesla Model X and Model S are made from aluminum, which is very expensive to repair when compared to steel body cars.

Moreover, any repair shop that wants to work on Tesla cars must be certified by the company. Such shops are required to send their repair personnel to California to receive training from the company’s representatives and use tools approved by Tesla. This would cost repair facilities more money.

AAA’s decision to increase rates on insurance comes at a time where other insurance firms, such as Farmers, may consider reducing insurance premiums paid by Tesla owners since their cars are getting safer thanks to the Autopilot technology. Furthermore, Tesla itself is advocating for a lower insurance premium on its cars. In Hong Kong and Australia, Tesla is selling insurance with its vehicles as part of the company’s plan to include insurance in the final sale price. Company representatives claim that HLDI has classified its cars incorrectly. According to Tesla spokespeople, the “analysis is severely flawed and is not reflective of reality.” Moreover, Tesla CEO Elon Musk and others believe Tesla’s cars are among the safest in protecting people from injury.

There have been several discussions about how insurance models would change if cars become safer with the introduction of self-driving features. The general thought is that since self-driving cars would reduce the number of collisions, the risk premium paid by Tesla owners must fall. According to the National Highway Traffic Safety Administration, since the installation of the Autopilot feature, crash rates for Tesla vehicles have experienced a 40% decline. Additionally, the medical payment claim frequency for Tesla’s Model S has been the lowest, when compared to other luxury cars. On the flip side, many newer vehicles come with expensive and complicated safety systems that cost thousands of dollars to fix, which may diminish the cost savings to insurers of safer cars.

A solution for Tesla owners who do not wish to pay more for auto insurance may lie in a usage-based insurance solution. Startups offer insurance programs that reward drivers for good behavior. Since the number of vehicles with smart features such as adaptive cruise control and emergency braking are increasing, insurance companies might lower premiums for such cars, once data proves the efficacy of these systems.

Photo Credit: Tesla Press Kit, owner/uploader: Alexis Georgeson.

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