Why do Tesla, Ford, General Motors, and Rivian sell insurance? – Since 2019, the insurance company Tesla has been selling car insurance in California, and it already has plans to expand to Texas, Illinois, and Washington.
Through a partnership with the insurance tech company Metromile, Ford started selling Usage-Based Insurance (UBI) in 2020. In the same year, General Motor opened its OnStar Insurance Agency to offer auto insurance that rewards safe drivers.
And just recently, Rivian, a new car company, said it would work with Nationwide to offer UBI to its customers.
What does it mean for the insurance industry that automakers sell insurance to people who buy cars? How will it affect how car insurance is given out? How can an auto insurance company stay competitive?
Why are car companies getting into insurance?
Let’s look at some of the reasons why car companies offer insurance:
Telematics made data more accessible
Because of how telematics has grown and become more popular.
This technology can keep track of how much you drive, how fast you speed up, how hard you brake, and how well you turn. Usage-based insurance (UBI) figures out the rate based on how they drive and gives safe drivers lower premiums as a reward.
More information is available about how people drive when their cars are connected to the internet or when they use their phones.
Now, carmakers can use the information that these devices give them. This will give them a new way to understand their clients. With information about how and why people drive, they can get better ideas for new products, more personalized pricing models, or service delivery in real time.
The UBI market will keep growing quickly.
Acumen Research and Consulting predicts that the global market for usage-based insurance (UBI) will grow at a CAGR of about 29% and reach about US$190 billion by 2026.
Automakers can change their relationship with their current customers by including balance sheets and auto insurance in the package.
A better time for the customer
By getting insurance from the company that made the product, customers will have a more direct and, in turn, better experience.
For example, every Rivian car comes with the Driver+ suite of safety technology made by the company. Customers of Rivian Insurance will automatically get a Driver+ rate discount on top of any discounts they get for using the feature that automatically steers and changes speed on the highway. (Source)
Lower rates for insurance
People who drive electric cars, mostly Teslas, have often complained that their car insurance rates are too high.
As a way to market itself, Tesla Insurance said that its premiums are 20% to 30% less than those of competitors. But only a few customers will be able to get it.
It’s possible that Tesla chooses the cases with the least risk and sends the more complicated ones to insurance companies with more experience and a bigger appetite for them. Or, to keep the customer with the brand, they might take a cut of the insurance money.
Is it a threat to the way things have always been done?
Yes and no, depending on who writes the insurance policies.
If a car company starts a new company to sell auto insurance with better rates, it will be a good sign of healthy competition, which is good for customers.
This is exactly what Tesla and General Motors are doing with Tesla Insurance and OnStar Insurance Agency, respectively.
This is just one side of the story, though. If an automaker is just selling the insurance and sending the underwriting to another company, like Ford did with Metromile and Rivian did with Nationwide, it’s just an extra service to make the customer experience better.
One thing is for sure: the way auto insurance is sold and marketed is being changed, especially because of UBI. Auto insurance is being sold in a way called direct-to-customer (DTC), which is much bigger than the way an insurance agent does it.
How to deal with price on top of that?
Auto insurance, like a lot of other things, has become a commodity. No matter where you get it, it’s the same. People have been buying based on price for decades and switching brands when they find better deals.
When new automakers enter the market and promise to save customers a lot of money, how should existing automakers market their products to stay competitive?
Besides the price, here are some other things that insurance marketers can do:
Partnership distribution is something you should use.
Not every company, like Elon Musk’s, has the tech know-how to make spaceships, electric cars, and insurance policies all under one roof. Most of the time, carmakers need to jump on quickly with a well-known company.
This type of business partnership, which Ford has with Metromile and Rivian has with Nationwide, gives the carmaker access to the insurance value chain, similar to outsourcing.
Having auto insurance tied to car companies makes a lot of sense, but here are two other partnerships that might give you ideas.
Next Insurance, a California-based online insurance company for small businesses, has recently teamed up with Amazon Business. Over 5 million Amazon Business Prime members can get general liability, professional liability, workers’ compensation, and other types of small business insurance from Next Insurance.
One of the biggest P&C insurance companies, Chubb, has joined forces with Grab, a Southeast Asian on-demand transportation and FinTech platform. Grab’s 2.6 million driver-partners will be able to access the product through the Grab driver app. It will cover accidents, hospitalization, and critical illnesses.
Carriers should always be on the lookout for new ways to sell their products, especially on online marketplaces.
Offer bundle discounts
Who wouldn’t like to spend less on insurance? Bundling auto and home insurance is not a new idea.
Homeowners who own their own cars could save money on their insurance premiums if they buy both policies from the same company.
The insurance company should offer more packages that save customers money. How about packages for your car, home, or pet?
At the end of the day, everyone wins because as more people buy more policies from one company to save money, the total premium per person will go up over time.
Build an ecosystem for insurance to improve the customer experience.
McKinsey defines insurance ecosystems as groups of services that work together to create a single, unified experience. This lets insurers integrate their insurance products into smooth customer journeys.
Let’s take a look at some examples:
Hippo was an insurtech company that specialized in homeowner insurance and gave its policyholders smart home monitoring services. The system can find water leaks, smoke alarms, changes in temperature, and doors, garages, and windows opening and closing inside your home. If something is wrong, sensors will send alerts to the homeowner’s phone.
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With every Oscar plan, members have access to Oscar Care, which lets them schedule video and phone appointments with high-quality providers in their network.
Oscar also has a search tool that makes it easy for policyholders to find doctors, hospitals, pharmacies, and other places that are in their network.
The insurance ecosystem is a value-added service that makes customers more interested in their journey as a user. The more they use the service and depend on it, the more loyal they will be.
Make it easier for people to apply
In a world where you can buy almost anything from the comfort of your own home and have many options just a few clicks away, people expect to buy insurance the same way they buy everything else.
Haven Life wants to make it easier and faster for people to buy life insurance. A person who wants to buy term life insurance can get quotes and fill out an application all online.
They know that almost half of Americans who want life insurance would rather not have to go through a medical exam. You can be approved for a policy in just a few minutes and never have to go through a medical exam.
For all insurers, how they handle a claim is the moment that will make or break them. If you do it right, you can not only keep the customer, but you might also get more business from them. Customers will leave if the process is hard to use and takes a long time.
Lemonade first changed the insurance market by setting a world record for how quickly claims were paid. Customers can file a claim through their app without having to fill out long forms. Most claims are paid right away, and their bot AI Jim takes care of that.
Even if a claim is turned down, you should show that you care by having your customer service team explain what went wrong and what else could be done.
What Comes Next?
If automakers, online retailers, and ride-sharing apps can sell insurance directly to customers, I won’t be surprised if I can get insurance for my phone screen or plasma TV from a shop/dealer or even a network provider at the time of purchase.
With UBI and other technologies, the traditional agent-to-customer model for selling insurance will eventually give way to the direct-to-customer model.
Insurance marketers have a lot of work to do until insurance agents are no longer needed. They need to design customer journeys that make the process of prospecting, applying, being serviced, and filing a claim easier without an agent in the middle.