NetEase Auto reported on March 7: As driverless cars take to the roads, the traditional commercial insurance model will face transformation. At this moment Tesla CEO Elon Musk has put forward a plan under which users pay a one-time insurance and maintenance fee for a Tesla electric vehicle; the cost is included in the car's purchase price, and the insurance will cover the car's entire life cycle. So, is selling auto insurance alongside the car intended to further integrate the industry chain, or is there an ulterior motive?
        With insurance industry reform imminent, can Tesla really break through the final barrier?
        As everyone knows, insurers currently set premiums based on factors relating to the car—in other words, the more expensive the car, the higher the premium. Suppose a household owns both a 'luxury car' and a 'grocery-getter': the luxury car is only occasionally driven out for business meetings, while the grocery-getter shoulders most of the daily commuting. In reality, therefore, the grocery-getter's driving risk is far higher than that of the luxury car—which means this is mismatched with the way auto insurance premiums are priced and clearly runs counter to the original intent of insurance. Users complain that premiums remain stubbornly high, while insurers complain there is no money to be made. Even if the number of claims can be used as a factor for dynamically adjusting premiums, that only achieves after-the-fact supervision.

        If a vehicle terminal were equipped with a 'driving behavior analysis system' that collects data across the multiple dimensions of the driver, the vehicle, and the road, evaluates the driver's behavior, and monitors the driver's habits in real time, a big-data model could be built to identify potential driving-behavior risks through big-data analysis, and the auto insurance amount could then be linked to the risk coefficient—a more rational way of underwriting. That raises the question: how does one collect data on users' driving behavior?
        Tesla CEO Elon Musk has proposed a plan under which users pay a one-time insurance and maintenance fee for a Tesla electric vehicle covering the car's entire life cycle, with the cost included in the purchase price. Through continuous negotiation, Tesla keeps the cost down, and that cost is tied to the R&D of the electric vehicle and of Autopilot driver-assistance technology. In other words, as Autopilot becomes ever more advanced and refined, the probability of accidents will keep falling. According to data from the U.S. National Highway Traffic Safety Administration (NHTSA), the accident rate of Tesla vehicles has dropped 40% since Autopilot was introduced in 2015.
        If realized, this would be a win-win-win for three parties
        If this insurance operating model is successfully implemented in China, it will become a critical turning point for the auto insurance industry.

        Zhang Zhiyong, founder of the Wenfeng Auto app, believes this is a win for all three parties. For insurance companies, which lack a big-data analytics system, it is impossible to precisely analyze drivers' behavior—that is, they cannot target policy solicitation to users in a way that maximizes the company's interests. For Tesla, if it can provide such a big-data analytics platform, it removes the key technological barrier in the auto insurance industry: it not only enables insurers to analyze users precisely, but also, as an intermediary, lets it use the bargaining leverage of volume to negotiate down the price users pay for coverage. For users, big-data analysis of their own driving habits ensures they get their money's worth from the premiums they pay and avoids blind policy purchases.
        Musk said: 'If we find that the insurance ratios offered by insurance providers do not match the risk of the car, we will take responsibility ourselves if necessary. I believe insurance providers will ultimately correct their insurance cost ratios so that they match the risk of Tesla vehicles.' From this it appears that Tesla will assess the risk and set a price; if an insurer's price is inconsistent with Tesla's price, Tesla will step into the insurance business to balance the premium.
        Is paying insurance costs in one lump sum really just because of a technological breakthrough?
        For now, Tesla's core business remains electric vehicles. Throughout 2016, Tesla sold 76,230 new vehicles worldwide, up 50.7% year over year; impressive as that figure is, it still fell short of the target of delivering at least 80,000 electric vehicles.

        Affected by a series of accidents, after Tesla's share price skyrocketed in early 2017, it promptly switched into full retreat mode: in January 2017 the stock fell 11% overall, then dropped another 4% right at the open on February 28, and the slide spread into March. In China, the world's largest new-energy vehicle market, Tesla's sales have also been disappointing. Musk had predicted sales of over 10,000 units in 2014, but only 2,499 vehicles were registered that year.
        Meanwhile, stubbornly high costs have trapped it in the awkward situation of 'the more it sells, the more it loses.' From its Nasdaq listing in 2010 through 2015, Tesla remained in a loss position, with cumulative losses as high as US$2.061 billion.
        With no profitable business to support it, transformation became imminent. At the end of last year, amid considerable controversy, Tesla Motors acquired the U.S. solar panel maker SolarCity. Only by achieving profitability will Tesla have a foundation for diversified expansion.
        Faced on the one hand with the pressure of massive losses and on the other constrained by the funding needs of diversified expansion, Tesla's current state can be described as 'in deep water.' It has also begun to make moves on items that were previously free, such as its previously entirely free charging piles. Starting January 15, customers placing new orders enjoy only 1,000 miles (about 1,609 km) of free charging; thereafter, using Supercharger stations will require payment.
        Yet it is at precisely this moment that Musk has rolled out the plan for users to pay a one-time insurance and maintenance fee for Tesla electric vehicles. Is there reason to suspect that its purpose is to pull funds back in advance and temporarily ease the 'urgent crisis' of tight cash flow? Of course, this is only an inference.
        Moreover, on February 1 this year, Tesla changed its company name in its financial report from Tesla Motors, Inc. to Tesla, Inc. This seemingly minor change signals that Musk's strategic transformation toward building an integrated energy company is proceeding steadily. What does this mean? One example makes it clear: at the Macworld Expo in San Francisco in 2007, the company changed its name from Apple Computer, Inc. to Apple, Inc.; looking back today, Apple's flagship product has already shifted to the smartphone. Comparing Tesla several years from now, will the car still be its flagship product? And if the reform of the auto insurance system does not receive sufficient attention and investment, will the promise of 'lifetime coverage' made back then still be fulfilled?

Source: NetEase Auto  March 7, 2017