
Tesla owners should pay more for insurance, AAA says - mudil
http://www.autonews.com/article/20170604/FINANCE_AND_INSURANCE/170609884/tesla-owners-should-pay-more-for-insurance-aaa-says
======
wjnc
Actuarial pricing is pretty simple in it's basis. Estimate claim frequency and
claim severity (loss) per model, age group, state, [100s more categories]. Use
proper statistical distribution. Apply markup for costs. Apply commercial
markup or discount when comparing to competition. Repeat yearly.

Since claim size is highly skewed, don't trust the new entrant to have enough
data.

Often 5+ yrs of data are used. So a new model / development like Tesla will
give you headaches. Usually some leap of faith and pressure from product
development will get the early premiums coming in too low, since everyone
wants a piece of the pie. I've seen that played out in many markets.

There are lots of interesting things going on in the data, so a proper PHYD-
scheme should be able to beat old school pricing rather quickly. But then
again, adoption of that is usually in sub-markets that are really different
(f.e. young drivers in a direct market are really not what you want dominating
your portfolio).

With regards to Tesla's reply. AAA will be modelling on an individual brand
basis. They are just using the data as a outside source comparison. The Volvo
comparison is not really important. Perhaps in the group F1-cars for regular
people they wouldn't stand out, but that doesn't change the equation for AAA.
Even with low N, if all the simple claims come in 1000s $ higher, you don't
need to be able estimate the entire distribution to expect a loss leading
proposition.

~~~
scarmig
Why don't companies price new models to the market relatively high instead of
low? That seems like they're leaving a lot of money on the table. And I can't
see why an actuary would care about pressure from product. Do you mean from
the car manufacturer, or some internal insurance product team?

Even if it's internal product pressure, I don't see why any insurance company
would do anything but give the actuaries a massive amount of say. That's the
core competency of insurance companies.

~~~
oe
Internal pressure probably. Not all insurance products are profitable.
Especially big insurers are willing to take a hit to get in "good" customers,
for example rich Tesla drivers. Then cross sell other products and raise the
price of the original insurance yearly.

~~~
samfisher83
Why would a rich tesla driver be a better customer? What if they make a bunch
of claims? Insurance is about having predictable data. In this case it looks
like Tesla drivers are making too many claims so they need to make premiums
higher.

~~~
Namrog84
While not rich and not a tesla driver. I'd speculate richer folks tend to not
micromanage prices changes(raises) in insurance premiums. Someone who is less
rich might reconsider insurance purely on a financial decision. And someone a
little more wealthy will never look twice at it.

Most people don't get in accidents and most people need auto insurance for
many decades. So those lazy rich people will likely not change.

This is also assuming most people don't make many claims in insurance. (as is
the base concept of how insurance works?)

~~~
fgonzag
Yeah, I don't usually cross shop renewals. I just renew whatever I have,
unless the premium increase is considerable (+15-20%).

I might be leaving a lot of money on the table, and I'm not even that wealthy,
but it's just not worth it to me.

~~~
ghaff
And I'd add that the few times I've made relatively minor claims on both my
home and auto insurance (handled by the same company), it's been pretty much
completely painless. It's just not worth it for me to go to a bargain basement
insurer to save maybe a few hundred bucks a year.

------
tuna-piano
Tesla's response is pretty non-sensical. Tesla basically says the vehicles
they're being compared to aren't real competitors, and that their cars are
very safe. Both of those things may be true, but it doesn't respond to the
institutes' point:

"In the large luxury SUV class, where collision coverage claim frequency is
the same as the average for all vehicles and the cost of claims is 43 percent
above average, the owners of the Model X file for claims 41 percent more often
than average, and those claims cost 89 percent more than average, according to
the institute."

~~~
Animats
Also "the rear-wheel-drive Tesla Model S is involved in 46 percent more claims
than average, and those claims cost more than twice than average."

The big problem seems to be cost of repair. Tesla owners have complained about
the high cost and poor availability of body parts.[1][2]

(I miss the 5mph bumper standard. For a few years in the 1980s, US cars were
required to have bumpers that could withstand a 5mph collision with no damage.
I have a Ford Bronco which complies with that. It was once rear-ended by a
SamTrans van. The van's nose and front end collapsed, as it should, for crush
depth. Damage to the Bronco was a bent bracket for the trailer power
connector.)

[1] [https://electrek.co/2017/03/09/tesla-parts-repairs-
lead/](https://electrek.co/2017/03/09/tesla-parts-repairs-lead/) [2]
[http://jalopnik.com/teslas-potential-body-shop-backlog-
night...](http://jalopnik.com/teslas-potential-body-shop-backlog-
nightmare-1793269803)

~~~
ryandrake
I'm curious as to why Teslas are involved in 46% more claims than average. Are
the cars shopping cart magnets or something? Are they falling apart? Do Tesla
owners get into more accidents than non-Tesla owners? Or do they just file
claims for every little scratch and paint chip?

~~~
jmharvey
One plausible explanation would be if Teslas logged more miles than comparable
cars. If I drove more, I'd be more inclined to spend money up front for a more
fuel efficient (and more fun to drive) car. And on the flip side, if I drove a
gas-guzzling luxury SUV, I might not put as many miles on it.

I have no data to support this, and I'm not an actuary, but Teslas driving
more miles than luxury SUV's and claims being proportional to miles driven
seem like a plausible hypothesis.

~~~
jjeaff
I think any group whose vehicle purchase decisions are colored by gas prices
are not the same group buying Tesla's or luxury SUVs. I would expect the
overlap to be very small at least. My guess is Tesla drivers put fewer miles
on them than average.

~~~
gambiting
If that was true, then Mercedes and BMW wouldn't sell any diesel S-class or
7-series cars, and yet they do(and they are majority of sales of these models
in EU) - people want luxury and great fuel economy at the same time.

------
igamer
As a Tesla owner I found anecdotal evidence of one of the core ideas here:
Tesla's just cost more to repair. My wife had some guy back in to the front of
our car - she was completely stopped at the time. Parking lot collision and
the other guy just wasn't paying attention, "crash" speed was probably < 4MPH.
It ended up costing him $13K, although clearly his fault I felt bad for the
guy. He managed to crush the instrumentation cluster in the nose and warp the
hood and front end (remember, aluminum). Also the redonkulous torque and speed
are abound to get some people in trouble, as fun as they are.

~~~
douche
I miss steel bodywork. This kind of "collision" in a 1980s vehicle would
require a little hammering to pop out the resulting dent, and a little touch-
up paint. Modern cars, it seems like you breathe on them, and they shatter and
you're replacing entire quarter-panels or front-end assemblies.

Somebody backed into the front corner of my _pickup truck_ at about 2 mph. Put
a little crack into the plastic bumper, that continues into the front quarter
panel. I'm glad I don't care about my vehicles looking 100% perfect, as I've
no doubt that it'd be in the shop for a week, torn completely apart, and would
cost a couple grand. It's ridiculous.

~~~
gambiting
As I mentioned elsewhere - if you get in an accident in an old car, you end up
with a barely damaged car and a dead driver. In a new car, you end up with
destroyed car and a driver without a scratch. I don't mean to be overdramatic,
but I would rather have every single part in the front of my car to crumple
and turn into dust in a low-speed accident, than get impaled on the steering
column just because the frame of the car won't crumple under impact.

~~~
freehunter
I mean, there has to be a happy medium. 5mph collisions won't kill or even
injure anyone in any car. There's no reason for a car to take any damage at
that speed. But yeah, 35+? Crumple away.

It just seems like it shouldn't have to be either/or. Is material science not
advanced enough to find some combination of parts that can sustain a low speed
impact with no damage but crumple safely in a higher-speed impact?

~~~
sangnoir
> Is material science not advanced enough to find some combination of parts
> that can sustain a low speed impact with no damage but crumple safely in a
> higher-speed impact?

For collisions, it's safe for the cabin to be fairly rigid to protect the
occupants while crumpling the zones further away to absorb as much of the
energy as possible before the impact reaches the soft, mushy humans.

It's a combination of physics _and_ costs. Material science might be advanced
enough, but the solution might not make economic sense; but if anyone has it,
it would likely be Volvo.

------
slackingoff2017
It sounds like the main issue here is repair cost. The cost of repairs is
about twice as much, which could at least partially explain why there's also
around 50% more claims.

Most people only report incidents to insurance if the damage exceeds the cost
of their deductable. If repairs to Teslas cost twice as much that could push a
non-trivial amount of repairs over that threshold.

Elon should make repair parts and shop training a higher priority. One of the
only advantages of the dealership model is having a large force of mechanics
very familiar with your vehicles. Perhaps Tesla should partner with some shops
or build their own in locations with Tesla offices.

I kinda agree that the Model S certainly isn't bought for the same reasons as
a luxury SUV. It's kinda funny that they're not comparing one of the fastest
cars in the world against other supercars. Sound like someone at AAA has stock
in Ferrari or something :).

~~~
Pulcinella
The Model S may have a fast 0-60 time but it is no supercar. It can't even do
one lap of the Nurburgring without entering limp mode.

~~~
TwoBit
True, though I imagine a lot of crashes can occur from just that 0-60. There
are lots of Internet videos that attest to this.

~~~
Pulcinella
Oh I agree. It still has far more performance than anyone really "needs" and
you can totally wrap yourself around a tree with that.

My Mazda 3 does 0-60 in about 7 seconds which would have been hot hatch
territory a few decades ago. That's plenty for most people even for highway
driving.

The Model S has a weird performance profile. Most other cars that have similar
acceleration also have the handling to accompany it.

------
JKCalhoun
> Collision damage claims for large luxury vehicles are reported 13 percent
> more frequently than average, and those claims cost about 50 percent higher
> than average, the Highway Loss Data Institute said. The rear-wheel-drive
> Tesla Model S is involved in 46 percent more claims than average, and those
> claims cost more than twice than average, it said.

Go with the data then. Perhaps luxury car owners are more likely to make a
claim from even a minor scratch? And since they are "luxury cars" there is
more of a premium on repairs? Just throwing out guesses, but as I say they
have the data and should charge as appropriate.

~~~
CoolGuySteve
> Tesla said the high rate of acceleration in both the Model S and Model X
> make it "false and misleading" to compare against vehicles such as the XC70

~~~
Judgmentality
That's a bullshit response from Tesla, roughly equivalent to 'our cars are
special snowflakes and should not be compared to other cars (but only when it
makes us look bad)' \- I see zero reason to believe that faster acceleration
means fewer claims and would love to see their evidence that contradicts what
this article states.

Their owners are filing more claims and more expensive claims. The way
insurance works is those people pay a higher rate (or insurance loses money on
them).

~~~
ars
> I see zero reason to believe that faster acceleration means fewer claims

I think what they mean is that the fast acceleration puts the Tesla cars in
the "luxury" bracket, but really they should be in a regular bracket.

~~~
myko
I think Tesla is arguing the opposite? AAA is comparing the cost of repairs of
Tesla's do cars that cost less than half as much. Tesla is saying their costs
should be compared to other cars of comparable value (other high end luxury
vehicles).

------
magnetic
I own a Model S and I know that one of the painful parts of ownership is that
you have to go to approved bodyshops and Tesla service centers, as well as use
only Tesla original parts.

That translates into very long wait times to fix your car (they haven't scaled
those yet, and they are exclusive, so it's a bottleneck), and higher costs.
Not to mention that parts aren't available that quickly since they have a
limited production rate and have to decide what % are used for repairs vs
producing new cars, and guess who impacts the bottomline the most? Then higher
costs of repair translates to higher premiums.

BTW I'm not complaining that the repair/service centers do a bad job - I've
generally had a good experience with them - but their scarcity and exclusivity
is an issue.

It can turn a minor fender bender into months-long waiting game without your
car (it's "at the bodyshop waiting for parts").

~~~
rjdagost
This makes me wonder how slow service will get once a large volume of Model
3's are on the road.

~~~
magnetic
I guess it all depends how much they invest in scaling that part of the
business. It's a bit of an optimization problem to figure out the "right"
formula to grow the business.

I can already feel the pinch at the supercharger stations. It's ridiculous to
have to wait for a spot to open. I wish the charging stations were designed
with 2 "pumps", so you can plug in next to someone, even if no current flows
to your car, and you get energized as soon as the other guy leaves. Also, with
a double feeder, it's easier for one party to share the input power with
someone else: sometimes I don't want the charge to go too fast (when I'm at a
restaurant inside a mall for example, and have to rush out in the middle of
the main course to free up the space). I wish I could simply say: "ok, let my
ETA be 1:45pm" and have the system dial everything such that another car can
charge while preserving my ETA.

------
revelation
I have no idea what on earth Tesla is trying to argue here.

 _" Among other things, it compares Model S and X to cars that are not
remotely peers, including even a Volvo station wagon"_

Okay? I don't see how any of that is relevant. Insurance prices should be
based on _risk_ , and _risk_ is _probability times severity_.

~~~
loourr
They're arguing the insurance costs will always be more for higher end cars,
so comparing the cost of repair to a much cheaper car makes no sense.

If there is a car 1/10th the cost of a Tesla but the Tesla is 3x as safe, you
would still expect the Tesla's insurance to be more.

------
pfarnsworth
I know a few people with Teslas. One got a fist-sized dent in the back door
and it cost $6000. Another got into a fender bender and it cost $30,000 to
fix. Im surprised insurance isn't higher already.

~~~
loourr
It needs to be considered within the bracket of car you're dealing with.
Insurance will always be higher for higher end cars. I imagine putting a dent
in a Rolls Royce is not a cheap matter either.

The big costs in insurance though I think are medical bills, which could run
well above the total cost of the car. In this respect, Tesla's should be much
cheaper to insure then say a Bugatti.

~~~
briandear
What is the safety record of a Bugatti?

------
throwaway-1209
There are only a handful of shops around where I live that will even touch a
Tesla when it comes to body work. Aluminum is hard to work with. OTOH someone
who has paid $100k for a car should be able to fork over $300 more a year.

------
clamprecht
Could Tesla just create an insurance company and offer their own insurance for
Tesla cars? They could probably offer a better rate than other companies.

In the helicopter world, I think this is what Frank Robinson did - created
Pathfinder insurance that offered the cheapest insurance for Robinson
helicopters. Their web page claims it is independent from Robinson
Helicopters, but I think there is a common owner somewhere up the chain.
[http://pathfinderindemnity.com/index.php?option=com_content&...](http://pathfinderindemnity.com/index.php?option=com_content&view=article&id=68&Itemid=466)

~~~
disiplus
how would that work. if the crash is my fault then my insurance is paying for
the repair and not yours. so it does not mather if you have tesla insurance.

or are we talking about casco insurance (that repairs your car if its your
fault ? )

i pay my insurance based on my age, power of the car, past accidents and the
city i live.

is it different in usa ?

~~~
robotresearcher
Now consider the case that you own the Tesla.

------
zekevermillion
Simple solution -- if Tesla thinks this is price gouging, why not get into the
insurance business. If they can go to mars, they should be able to underwrite
the cost of replacing Tesla body panels, haha.

------
rasz
In Europe we have two types of insurance:

Compulsory liability insurance - this one pays out for damages and injuries to
the victim of a collision you caused.

Comprehensive insurance - covers everything even if you are the cause of
accident.

>the owners of the Model X file for claims 41 percent more often than average,

What exactly does that mean? Did they cause the accident, or did someone else
rear ended their Tesla? This smells like victim blaming.

~~~
Spooky23
When I hit a deer with my 2003 Pontiac, I lost the bumper, radiator, quarter
panel, hood, mirror and had a hoof scratch running down the length of the car.
Total cost: $6k in 2007.

From what I hear, bumper replacement alone can top $10k on a Model S.

~~~
rasz
Sure, but that means you are talking voluntary self insurance, not the
compulsory third party liability one.

To me, European, statement "AAA claims Tesla owners should pay more" means
they want to bump price of compulsory insurance for Tesla owners - insurance
that covers damage done to other cars, not the expensive Teslas. No one is
stopping you from charging more for voluntary coverage.

~~~
Spooky23
If you read further down, they clarify that they are talking about collision
(i.e. The driver was at fault and banged into something) and comprehensive
("act of god") claims.

Those are rate lines independent of liability.

------
jakelarkin
Hypothesis: Aluminum Body and frame cars are still in the minority and require
more careful/specialized/costlier repairs.

~~~
sliken
All new Teslas have the 12 sets of fancy sensors (cameras and ultrasonic)
sprinkled around the car, complete with mounts and cabling. The car is also
fairly well optimized for minimum air resistance to maximize range per watt.
The complications mean that your average body shop can't do it and/or doesn't
have access to the parts. So you get higher prices, which of course results in
more claims because more of the repairs are well above the deductible.

------
tomcam
>Other large insurance companies, including State Farm and Geico, said that
claims data is a major factor in calculating premiums, but would not disclose
if their Tesla-owning customers would also see rates rise.

Ruh-roh!

------
loourr
Tesla owners in fact already pay less insurance because of agreements the
company has made with certain insurers. The reason they are able to make such
agreements is that the cars are objectively safer.

~~~
FireBeyond
If they were objectively safer, all insurers would have lower rates for them
based on the actuarial data.

"Agreements with certain insurers" is a commercial, promotional consideration,
and has precisely zero correlation with your claim that it shows they are
"objectively safer".

~~~
loourr
While commercial and promotional consideration's definitely come into play if
the insurers were losing money I highly doubt they would be doing it, so to
say there's zero correlation seems strong/wrong to me.

Tesla's are objectively safer according to measurements by NHTSA but that
doesn't necessarily mean that all insurers would charge less. For one there is
a long time delay in building an accurate insurance model. Also, insurers are
not altruistic, they will price at whatever the market will bear so until it
becomes very clear that Tesla's cost less or all of the competition starts to
do it, you won't see prices come down.

~~~
legolas2412
> I highly doubt they would be doing it,

Unless the said "agreement" involved Tesla slipping them money. Essentially
you paid for your insurance upfront to Tesla.

Yes, Tesla are safer. But this doesn't mean 1) Tesla have less accidents 2)
Tesla repairs are cheaper

------
NewSystems
Makes sense for a $100,000+ Ferrari... I mean Tesla.

------
jimrandomh
Hypothesis: this is coming from insurers whose pricing isn't mileage-based,
and Teslas are getting more miles per month than other cars in the same class.

~~~
legolas2412
Is the entire industry so dumb they overlooked such an obvious parameter?

I mean it's possible, but back your claim up with something

------
mathattack
Is this a preemptive strike? Autonomous cars will kill insurance company
profits.

~~~
vkou
Just like 99% autonomous ships have killed shipping insurance company profits,
and how 95% autonomous airplanes have killed air insurance company profits?

~~~
mathattack
Air insurance profitability is down, in part due to technology innovation.
[http://www.theactuary.com/features/2015/09/on-a-wing-and-
a-p...](http://www.theactuary.com/features/2015/09/on-a-wing-and-a-prayer/)

------
Overtonwindow
Because less maintenance? I don't see the logic here. Does AAA have something
to gain by requiring anyone to pay more insurance?

~~~
rory096
Because "Model S and Model X had abnormally high claim frequencies and high
costs of insurance claims compared with other cars in the same classes."

AAA is the insurer — they obviously directly gain from increasing premiums
(all else being equal) and lose when premiums are lower than the insured risk.

~~~
tptacek
Auto insurance is fiercely competitive, and margins are relatively low, and
companies spend a lot of money on overhead and cost of customer acquisition,
so AAA has a lot to lose by unilaterally raising rates.

