< PreviousAuto Insurers 28 BEST’S REVIEW • OCTOBER 2022 bigger deal than it may seem. A lot of people are paying 30%, 40% as much as their lease payment for the car, in car insurance.” Tesla said its real-time insurance is based on measurable driving behavior. Technology Roots Twenty-one years ago, when OnStar was collecting vehicle usage data in 34 of General Motors’ then-54 models, a spokesman said the onboard automobile information system was working on partnering with insurers. OnStar’s inducement included cost savings because insurers wouldn’t need to develop data-gathering equipment and then get it into vehicles. That was three years before Progressive Corp.— which has since become the third-largest private passenger writer in the United States, according to AM Best data—piloted a usage-based insurance program to research driving habits. In 2008, Progressive started offering customers the option of tying driving data to premiums. Telematics adoption lagged through the years even as the ease improved from the early days, when consumers were required to install dongles to access UBI. Now that smartphones are common, telematics options from multiple carriers are just an app away. The amount of information an insurer can gather comes close to carmaker-installed monitoring systems, said Sullivan. Mayfield, however, raised a prime consumer concern: data privacy. “Dealership agents should be prepared to answer a similar line of questioning from consumers: What information from their vehicles will manufacturers plan to share with insurance companies?” That’s a problem for carmakers because the distribution system incentivizes salespeople to sell vehicles as quickly and with as little friction as possible, said Sullivan. “All a salesperson wants is to get the car off the lot. Anything that might get in the way of closing the sale immediately will be ignored by sales and finance people in dealerships. Insurance is far more complicated than selling rust protection add-ons.” Connected carmakers are already collecting enormous amounts of data on how vehicles are driven and maintained. That can give them an edge, albeit a minor one, as telematics becomes more widely accepted, according to Sullivan, even as many car buyers opt to retain a degree of privacy, or at least the right to decide when and who has access to their personal movements and habits. Ford affiliate American Road Services Co. offers Ford Insure, underwritten by Nationwide Mutual Insurance Co. and its affiliates. Ford Insure customers employ FordPass App—compatible with smartphones—and FordPass Connect—an optional feature on some of the carmaker’s models—on newer vehicles to transmit data on miles driven, hard braking and accelerating and stop-and-go and night driving. Ford’s insurance messaging mirrors that of partner Nationwide’s for the general public. “While that discount is being calculated, you automatically get a 10% discount just for signing up,” Ford Insure notes on its website, promoting auto insurance discounts as high as 40% and potential additional savings by bundling other vehicles, home or pet insurance with the auto coverage. Jacobs thinks 70% of new customers will opt in to UBI plans within five years, based on current trends. Sullivan isn’t surprised, seeing the day when drivers who decline to use telematics are presumed to be high-mileage or high-risk policyholders. Even if they’re not, they will pay more for the privilege of privacy, he predicted. BR “There is no advantage at all to a traditional auto manufacturer owning a traditional insurance company.” Brian Sullivan Risk Information Inc.Auto Insurers 29 BEST’S REVIEW • OCTOBER 2022 BMW Insurance Relationship BMW UK offers a suite of insurance products through BMW Insurance Solutions, a trading name of BMW Financial Services (GB) Ltd. Insurance policies are underwritten by a selected panel of insurers. BMW 5 Day DriveAway Car Insurance is a comprehensive policy. Once activated, it covers the owner from the moment the new or approved used BMW is collected for five days. BMW Flex Car Insurance is a fully comprehensive monthly subscription insurance policy. This insurance is underwritten by Highway Insurance Company Ltd. BMW Shortfall Insurance, Tyre Damage Insurance, BMW Cosmetic Repair Insurance and BMW Contract Hire Shortfall Insurance are underwritten by Helvetia Swiss Insurance Co. in Liechtenstein Ltd. BMW Group Australia offers BMW Premier Motor Insurance, which is provided by Allianz Australia Insurance Ltd. Partners Highway Insurance Company Ltd. AMB# 084154. Domicile: Bournemouth, United Kingdom. Ultimate Parent: Allianz SE. AMB #085449. Helvetia Swiss Insurance Co. in Liechtenstein Ltd. Allianz Australia Insurance Limited. AMB# 077889. Domicile: Sydney, NSW, Australia. Ultimate Parent: Allianz SE. AMB# 085449. Ford Motor Co. Insurance Relationship Ford Motor Credit Co., Ford’s financial services company, manages the insurance products. Ford Insure and Lincoln Motor Co. Insure are offered through Ford Motor Credit Co.’s licensed insurance agency, the American Road Insurance Co., in the U.S. The insurance is underwritten by Nationwide. Partners American Road Insurance Co. AMB# 000152. Domicile: Dearborn, Michigan, USA. Ultimate Parent: Ford Motor Co. AMB# 050293. Nationwide Mutual Insurance Co. AMB# 002358. Domicile: Columbus, Ohio, USA. General Motors Insurance Relationship Insurance policies sold through OnStar Insurance Services are underwritten and issued by member companies and affiliates of Homesite Group Inc. In California, insurance policies are underwritten and issued by American Family Connect Property and Casualty Insurance and American Family Connect Insurance Co. Partners OnStar Insurance Services Inc. Domicile: Arizona, USA. Homesite Group. AMB# 050090. Domicile: Delaware, USA. Ultimate Parent: American Family Insurance Mutual Holding Co. AMB# 046495. American Family Connect Property and Casualty. AMB# 003563. Domicile: De Pere, Wisconsin, USA. Ultimate Parent: American Family Insurance Mutual Holding Co. AMB# 046495. American Family Connect Insurance. AMB# 013104. Domicile: De Pere, Wisconsin, USA. Ultimate Parent: American Family Insurance Mutual Holding Co. AMB# 046495. Subaru Insurance Relationship Subaru drivers who switch to Liberty Mutual Subaru Advantage insurance could save money on their auto insurance. Its insurance is customized especially for Subarus. Coverage is provided and underwritten by Liberty Mutual Insurance Co. At A Glance - Auto Insurance Initiatives Best’s Review provides a look at auto manufacturers and steps they have taken to build their new insurance future.Auto Insurers 30 BEST’S REVIEW • OCTOBER 2022 Partner Liberty Mutual Insurance Co. AMB# 002283. Domicile: Boston, Massachusetts, USA. Ultimate Parent: Liberty Mutual Holding Co. AMB# 051114. Tesla Insurance Relationship Tesla offers its own insurance product in 11 states, including 10 in which it makes use of its own real-time driver data. Tesla Insurance Holdings LLC, a subsidiary of Tesla Inc., closed on its acquisition of Balboa Insurance Co. from BA Insurance Group effective Jan. 21. Tesla first introduced its insurance offering in Texas, with Redpoint County Mutual Insurance Co. handling the company’s underwriting. Insurer Tesla General Insurance. AMB# 002068. Domicile: Phoenix, Arizona, USA. Ultimate Parent: Tesla Inc. AMB# 045238. Volkswagen Insurance Relationship Volkswagen Car Insurance is provided by UK Insurance Limited. Volkswagen Autoversicherung AG offers auto insurance in Germany as a primary insurer. Partners UK Insurance Limited. AMB# 087648. Domicile: Leeds, United Kingdom. Ultimate Parent: Direct Line Insurance Group plc. AMB# 055566. Allianz SE. AMB# 085449. Domicile: München, Germany. FIND OUT WHAT INSURANCE INDUSTRY EVENTS ARE ON THE HORIZON Best’s Calendar is a complimentary online resource that provides important information on insurance industry meetings, webinars and conferences. Easily find any event by name, organization, date, description or venue using our advanced search features. Scan the QR code to see upcoming events and get the latest conference information. 22.BC001G Our Insight, Your Advantage ™ Learn More: news@ambest.com www.ambest.com • (908) 439-220031 BEST’S REVIEW • OCTOBER 2022 Auto Insurers For Tesla, Telematics Provides a Battery of Information on How Its Customers Drive and How to Insure Them Automaker Tesla has ventured into the world of insurance, a move that CEO Elon Musk believes has become a “quite significant” part of Tesla’s makeup. by Anthony Bellano T esla Chief Executive Officer Elon Musk has often found a different way to do things, whether it’s innovations involving electric cars or changing the dynamics of space exploration through SpaceX. To the billionaire, the world of insurance is no different. Unlike many of its fossil-fuel-driven competitors, Tesla not only offers insurance for Anthony Bellano is an associate editor. He can be reached at anthony.bellano@ambest.com Photo courtesy of Tesla, Inc. Key Points What’s Happening: Tesla not only offers insurance for its automobiles, but in 10 of the 11 states where it has a presence, its insurance rates are based on Tesla’s real-time driving product. Perspective: Tesla was ranked 10th among all U.S. auto manufacturers for the second quarter of 2022, selling 118,700 cars while General Motors topped that list with more than 575,000 cars sold, according to auto sales and statistics website goodcarbadcar.net. State of the Business: Despite recording a net loss of $207 million for the first quarter of the year, Tesla Insurance says it is the No. 2 insurer of Teslas in Texas. PRODUCTION SITE: Tesla’s Fremont Factory is the hub for Model S, Model 3, Model X and Model Y production. The Fremont Factory is also one of the largest manufacturing sites in California, according to the company.Auto Insurers 32 BEST’S REVIEW • OCTOBER 2022 its automobiles in the United States, but in 10 of the 11 states in which it has a presence, the electric-car company’s insurance rates are based on Tesla’s real-time driving product. And it is translating into success in Texas, the first state where Tesla ventured into the insurance industry. During a first-quarter conference earnings call, executives said that Tesla was the second-largest insurer of Teslas in the Lone Star State. “The customer reception to this has been quite positive,” Tesla Chief Financial Officer Zach Kirkhorn said in the call. When Tesla entered the market, Redpoint County Mutual Insurance Co. handled the company’s underwriting in Texas. Recently, Tesla acquired inactive California insurance company Balboa Insurance Co. and its subsidiaries, Meritplan Insurance Co. and Phoenix-based Newport Insurance Co. All companies changed their names to Tesla Insurance Co. in the first quarter of the year, according to a filing with the California Department of Insurance. Balboa had been licensed to operate in 49 states and several territories, and also operated on a surplus-line or nonadmitted basis in Louisiana, according to a Best’s Credit Report. Tesla offers its own insurance in some form for Model S, Model 3, Model X and Model Y owners in Texas, California, Oregon, Virginia, Arizona, Colorado, Illinois, Maryland, Nevada, Ohio and Utah. During their first-quarter call, executives said they were working to ensure that 80% of Tesla customers had access to their insurance product by the end of the year in the United States, before exploring the possibilities for international expansion. As for the company’s financials, Tesla Insurance Group had a net loss of $207 million, according to Tesla’s financial statements for the first quarter of 2022. At the end of 2021, it had a loss of $275 million, after recording net income of $73 million in 2020. Its total admitted assets for the first quarter of this year were $27.3 million, compared with $47.4 million for the same period in 2021. In many cases, policies are underwritten by Tesla General Insurance, with the program being distributed through the digital insurtech platform from Tesla Insurance Services. In all of those states except California, Tesla uses telematics to set the rates. “If you drive the car in a safer way you actually have lower insurance,” Musk said via a remote connection to the All-In Summit conference, which was held in Miami in May. “Our insurance is based on how you actually drive, not how historically people that fit your order of demographic have driven. Then you can close the loop around your insurance rate by simply driving better and looking at your score and lowering your insurance in real time. People do it. It actually promotes safer driving.” He told participants in that conference that insurance is a “quite significant” part of Tesla’s makeup. “Elon Musk felt that insurance for Tesla cars was priced higher than it should be. He believes that he “Elon Musk felt that insurance for Tesla cars was priced higher than it should be. He believes that he has the data on the way these cars are constructed, and more importantly, data on how these vehicles are being driven to potentially price the risks better.” Edin Imsirovic AM BestPowered by AM Best’s Experience and Knowledge • US statutory filing software, now Excel-based with convenient cloud storage • An easy-to-use interface for accurate and efficient statement preparation • Professional-looking, quality output • Backed by AM Best’s 120+ years analyzing insurance data ELECTRONIC STATEMENT PREPARATION Our Insight, Your Advantage ™ Learn More: bestesp_sales@ambest.com (908) 439-2200 22.ESP04D Untitled-2 18/9/2022 4:13:49 PMAuto Insurers 34 BEST’S REVIEW • OCTOBER 2022 has the data on the way these cars are constructed, and more importantly, data on how these vehicles are being driven to potentially price the risks better,” AM Best Associate Director Edin Imsirovic said. “It’s really a trend about the generation of this data and the leveraging of it to potentially better price the risk and the premium rates.” Tesla uses features in the car to evaluate driving based on behavior, so that drivers don’t need to buy an extra device to put in their cars. Those rates are based on where they live, what they drive, how far they drive and what coverage they select. On its website, Tesla says the average driver could save between 20% and 40% on auto insurance coverage and the safest drivers could save between 30% and 60%. Regulations Because each state has a different set of regulations, Tesla has to tweak its software to meet each individual state’s standards. However, California doesn’t even allow for the use of telematics, which led to a public Twitter spat between Musk and California Insurance Commissioner Ricardo Lara earlier this year. In a conference call late last year, Musk called California’s rules “contrary to the best interest of the consumers in California,” and said they needed to be changed. Lara responded by saying California’s rules protect consumer privacy and data, and offer rates, to which Musk said, “you should be voted out of office.” Tesla recently began letting people who buy Teslas in California use their driver safety score “for educational purposes.” “When people can see a real-time score, they realize, oh, if I make the following changes in my driving habits, then I pay less in insurance, then they have like a real-time feedback loop for safer driving and an incentive to do so,” Musk said in Tesla’s first-quarter earnings call. “So actually what we’re seeing is it is causing people to drive their cars in a safer manner, which is also a net good.” Kirkhorn said their drivers are seeing lower premiums. “We have extremely high retention for customers who experience the product,” he said. “This has become a real passion program for us for these benefits. It’s bigger than just the economics. We’re trying to do a good thing here for our customers, save people money and make the roads a little bit safer.” When there are accidents, Tesla handles all its claims in-house and uses its own collision centers for repairs. “Basically, the customer experience is just vastly better because if there’s an accident, there’s no argument. We repair it immediately,” Musk said in Tesla’s first-quarter earnings call. “And this is as compared to arguing with an insurance company, and then a claims adjuster, and then a collision repair center.” A study conducted by the Highway Loss Data Institute found that total loss rates and the percentage of claim dollars paid for total losses were mostly lower for the Teslas than for comparable conventional vehicles of the same size, class and model year. The average collision loss payments, payments for total losses, and salvage recovery amounts for the Tesla vehicles also were generally higher than those of comparable conventional vehicles. The study was conducted from 2016 to 2019, and in most of those years, the Tesla Model S and Model 3 had average salvage recovery amounts around twice as high as comparison vehicles of the same model years, while the Model X was only about 20% higher. The company’s entrance into the insurance market has coincided with its continued growth. Tesla’s share of the total U.S. auto market exceeded 2% in the summer of 2021, peaking at 2.59% in September 2021, according to German data company Statista. In 2021, Tesla delivered more than 935,000 cars worldwide, the highest number of cars since 2016 and more than double what was sold in 2020, according to Statista. According to auto sales and statistics website goodcarbadcar.net, Tesla was 10th among all U.S. auto manufacturers for the second quarter of 2022, selling 118,700 cars. General Motors topped that list with more than 575,000 cars sold, while Toyota, Ford and Stellantis all sold more than 400,000 cars. BR Tesla is working to ensure that 80% of Tesla customers had access to its insurance product by the end of the year in the United States. Source: Tesla Inc.35 BEST’S REVIEW • OCTOBER 2022 Auto Insurers Swiss Re: Technology Will Eliminate Traditional Underwriting Factors The company says its scoring system can eliminate using credit scores, gender and garage addresses to calculate an insurance premium. by Anthony Bellano I nsurers have had a long-time practice of using risk proxies such as age, location and claims history to set rates and coverage in auto insurance. But as cars have been changed by technology, so has insurance. Swiss Re has developed a risk scoring system, using information from car Anthony Bellano is an associate editor. He can be reached at anthony.bellano@ambest.com . Key Points Knowing the Score: Swiss Re has developed the ADAS Risk Scoring System, which uses information gleaned from Advanced Drivers Assistance Systems, to help insurers understand how to set more accurate rates. European Application: BMW and Toyota are the first two manufacturers to use Swiss Re’s ADAS Risk Scoring System. It is currently available only in Europe. Tech Update: As cars have changed with technology, so should insurers’ long-time practice of using risk proxies such as age, location and claims history, said Swiss Re’s Andrea Keller. Photo courtesy of Toyota North America ALL SYSTEMS READY: Latest onboard/navigation data display installed in a 2022 Toyota Tundra.Auto Insurers 36 BEST’S REVIEW • OCTOBER 2022 manufacturers’ Advanced Drivers Assistance Systems, that helps primary insurers understand how to offer more accurate rates, said Andrea Keller, head of Swiss Re Automotive and Mobility Solutions, a branch of the reinsurer that looks at innovation. ADAS measures factors that include automatic emergency braking and lane departure warnings, among other factors. The individual companies decide what data they will collect, and how that data will be used. “With highly automated vehicles that you have on the road today, the car might replace you in braking maneuvers if you get too close to the car in front of you, and it’s not you really making that decision,” Keller said. “Cars take away driving tasks from drivers.” How It Works Swiss Re examined the various ADAS present in the cars used by their partner companies worldwide. They looked at their capabilities in different traffic conditions under various conditions. They considered safety and the cost of repair. They take into account data from the manufacturers, the insurers on claims experiences in their portfolio, as well as data from their other partners, such as test centers, to determine the score, Keller said. The score acts as a complement to companies’ existing rating models. Collectively, Keller said their insurers have told Swiss Re they’ve been able to improve claims prediction from 5% to 35% for more than 65% of the policyholders in the tested portfolios. Swiss Re first rolled out the ADAS Risk Scoring System through a partnership with BMW in 2019. At the time, Swiss Re was looking to partner with manufacturers that were actively developing ADAS. Their partnership was the result of having a “similar pain point,” Keller said. BMW has installed ADAS in their vehicles since 2012, but they hadn’t seen their insurance partners or insurers in general actively using that data in their calculations, Keller said. As a reinsurer, Swiss Re was hearing questions from primary insurers about how these emerging trends would impact auto insurance. “So we really came together because we had that same understanding that it could be powerful to engage in a cross-industry partnership where we get some insights from the engineers on how cars are built, how safety systems can prevent accidents,” Keller said. In 2020, Toyota partnered with Swiss Re to make the scoring system available in Toyota and Lexus vehicles, initially in Europe. The system is not yet available in America, but Toyota understands the insurance challenges presented by these developing trends. “Automated driving changes the whole nature of the insurance that’s being considered,” said Toyota Insurance President Will Nicklas. “There are many considerations that have to go into the type of insurance product that we’ll be able to provide for autonomous cars, and we’re researching what that insurance is going to look like.” He also agreed with Keller’s assessment on the need to change the way insurers cover drivers. “I think every algorithm out there is using hard braking, hard acceleration, hard cornering,” Nicklas said. “But then, mileage is a factor in some of the algorithms. Just how much you’re driving is indicative of the opportunity to have an event. Some of the algorithms use time of day. The ultimate goal is to eliminate some of these traditional underwriting factors. If we’ve got a great algorithm that really is indicative of someone’s driving skill, and their ability, we can eliminate the credit score in calculating an insurance premium. Eliminate gender. Eliminate garage address. These are some of the things we’re looking at so that we can offer a really fair way to underwrite insurance.” In the United States, Toyota equips every car with a data communication module that can collect driving data that can be shared—at the customer’s request—with the carriers Toyota Insurance works with. “We’re empowering customers who opt in the ability to use their data to save money on insurance,” Nicklas said. “Carriers appreciate the accuracy of data being shared, and customers appreciate the ability to use the data to their own benefit.” As for Swiss Re, Keller said the reinsurer’s 37 BEST’S REVIEW • OCTOBER 2022 initial goal was to build partnerships with as many original equipment manufacturers as possible, but they also understood that it takes time to establish these partnerships and get them live. “A lot of the development we’ve done is to create what we call a more universal risk score, so we’re now able to give risk scores on ADAS systems not just for BMW and Toyota, but for 95% of all brands globally,” Keller said. That universal score is based on research from Swiss Re’s test track partners, the portfolio analysis it does with insurers and other data the reinsurer’s partners have provided. The score has also expanded over time, taking into account a growing number of factors. “I think that’s been a big development step in terms of what we can offer to the insurance industry,” Keller said. “If we can cover the majority of their portfolio, the risk score is much more attractive for them to implement into their insurance programs.” Swiss Re offers portfolio analysis consulting based on its risk scoring system to several corporations across the globe, ranging from the United States to Australia. “We also have programs with insurers leveraging our scores in their point-of-quote process,” Keller said. “For example, one client we just announced is Wefox in Italy that is leveraging our ADAS risk score as part of their rating models.” Each insurer uses the score system differently. “Some use it for growing in certain segments,” Keller said. “Others use it to improve loss ratios or just portfolio steering, so it really depends on the individual use cases.” Swiss Re has added a score that specifically shows insurers how covering electric and battery-powered vehicles is different from insuring combustible-engine vehicles. “A much larger share will be electric vehicles, especially markets like Europe or China. We will look at not just ADAS, but all technology in the vehicle and how that impacts the motor risk,” Keller said. “We are expanding it into an AV risk framework, guidelines for insurers so they can understand how to price fully autonomous vehicles or highly automated vehicles where the driver itself doesn’t make a difference on the risk profile anymore.” BR CONNECT WITH AM BEST The Twitter, LinkedIn, YouTube & Facebook logos are trademarks of Twitter, Inc., LinkedIn Corporation, Google & Facebook, Inc. www.ambest.com On Twitter @AMBestCo @AMBestRatings On LinkedIn ambest.com/corplinkedin ambest.com/ratingslinkedin ambest.com/infoserviceslinkedin On YouTube www.ambest.com/ AMBestYouTube/ On Facebook www.facebook.com/ ambestcompany/ Via Multimedia Channels 21.MK011JANext >