Car makers have the potential to cut insurers and brokers out of the process of selling motor insurance - with the launch of Tesla Insurance should the incumbents be alarmed?

If the motor insurance market wasn’t already competitive enough, Tesla’s entrance has the potential to take it to a whole new level.

With its claims that Tesla drivers will be able to purchase policies up to 30% cheaper than those elsewhere in the market, there is a real  danger that it will cut brokers and insurers out of the selling process.

Ben Carey-Evans, insurance analyst at data and analytics firm GlobalData, said Tesla Insurance “poses a threat to the big insurance companies” for this reason.

But car makers selling own-brand insurance direct to customers is nothing new.

LV’s managing director of the direct business, Heather Smith, said Tesla’s move into the market as a new entrant was “significant”, but with several other car manufacturers in the market, it was “by no means a game changer”.

Many motor manufacturers, including General Motors, BMW and Toyota, have established partnerships with underwriters over the years to sell insurance to their customers.

These attempts have been to “varying degrees of success according” to Andrew Brown-Allan, managing director of Trak Labs, part of Trak Global Group.

“At the moment no matter how brand-loyal you are there are the four behemoths of price comparison sites where you can go and in an instant get the best rate,” he said.

“Generally motor manufacturers haven’t been able to match the price comparison sites because they often sign exclusive deals with one insurer, which leaves them restricted on the pen.”

Data advantage

If Tesla can live up to its promise of selling policies 30% cheaper than the market rate though, this could be a game changer.

The high-tech vehicles report huge volumes of data to Tesla on their customer’s driving, giving the car maker a huge advantage over the incumbent insurer market when it comes to pricing.

And across the board motor manufacturers are fitting their new vehicles with more sensors to detect and report back data on the customer’s driving.

Insurers, though, say this data presents opportunities to work with the manufacturers.

“Insurers shouldn’t see the motor manufacturer as a threat, but instead as another valuable distribution channel with the opportunity to collaborate on new propositions,” said Zurich’s head of intermediary and partnerships, Phil Ost.

Tesla’s insurance product is underwritten by Markel, and after attending a briefing on Tesla’s insurance plans, analysts from Credit-Suisse in August commented that “Tesla is more likely to partner with multiple insurance companies rather than seek to become a formidable competitor.”

That note was based on a presentation from Tesla’s head of insurance, but the car maker’s willingness to work with underwriters was brought into question when Tesla reportedly told the Financial Times it was taking steps to become a fully fledged insurer.

Brown-Allan said he wouldn’t be surprised if Tesla chose to go down this route, as he said founder Elon Musk “wants to control as much around his brand as possible”.

Underwriting appetite

He said this could be classified as a threat, but questioned whether other car makers would have a similar appetite to take over the pen.

“Manufacturers have much more pressing issues on their plate rather than launching into insurance, like how to bridge to electrification,” Brown-Allan said.

He suggested the majority would prefer to collaborate with incumbents rather than compete.

“What they have more of an appetite for is leveraging the value of the data the car is collecting,” he added.

“That doesn’t necessarily mean they will handle the retail transaction. It’s much more likely we see a scenario where manufacturers are making their data available to insurers in a marketplace.”

Ost further suggested it was more beneficial for motor manufacturers to work with insurers on their own-brand offerings, rather than go it alone.

Ost said: “At the end of the day, insurance is a specialist, complex and increasingly regulated sector so leveraging the core skills, technical expertise and capacity of an insurer with the innovation and data from a motor manufacturer can prove a powerful combination.”

Broker threat

Whether Tesla and other car manufacturers choose to collaborate or compete though, it still poses the risk of leaving traditional motor brokers out of the selling process.

Brown-Allan agreed that the threat posed by car makers selling insurance was greatest to brokers.

But with the average age of a car on UK roads at six to eight years old, and the number of new cars being bought falling, he said there would continue to be an accessible market for brokers in the near term.

He said: “Among certain demographics there are still going to be a lot of very unconnected traditional lower value cars in the market that manufacturers aren’t going to be interested in.”

Trak Global Group owns telematics broker Carrot, which targets young, newly qualified and inexperienced drivers.

He said in this segment, where the average value of a vehicle is around £800, the market would remain healthy for brokers. To insulate themselves against car makers selling insurers, he said brokers had to find a similar specialism.

“If you’re a general motor broker I think you are looking over your shoulder at these emerging trends and the rise of the manufacturer proposition.

“If you’re a specialist like we are I think we’re somewhat insulated for the longer term.”

Brokers an ‘essential force’

Biba said it is having discussions to promote the continuation of an “open, functioning, competitive market”.

It said brokers would remain an “essential force in the market” not only in searching the market for the best options, but also in helping with claims issues.

AXA Insurance motor director Neil Mercier shared this view, and said there was room for brokers, insurers and car makers to all sell insurance.

Mercier said: “Insurers and brokers can stay relevant to customers by continuing to provide quality products, good claims service and, crucially, competitive premiums; however there is also space for car makers to partner with insurers to offer new propositions.”

Whether the launch of Tesla Insurance proves to be a game-changer may come down to how it performs.

Mark Andrews, director of general insurance at financial services consultancy Altus, said Tesla had the capability to offer the discounts claimed, but said that he had also seen comments suggesting premiums quoted so far are 50% higher than US motor insurer Geico.

“The proof will be in the pudding when premiums are offered to customers”, Andrews said. “Other vehicle manufacturers may take note, but I don’t predict any launching full-stack insurance products at this stage.

“They will continue to white-label traditional insurers products, but it’s unlikely that we’ll see any manufacturers taking on risk.”

Autonomous vehicles

Brown-Allan says the launch of Tesla Insurance could be a pre-cursor to Tesla providing the insurance for fully autonomous vehicles.

Law firm Kennedys has said some insurers can expect to lose up to 60% of their premiums through the rise of autonomous vehicles, with cover moving to manufacturer product liability and software providers.

But Brown-Allan doesn’t expect this to happen until deep into the 2020s, and in the shorter term he expects motor brokers and insurers to be safe.

He said: “If you follow through on the principle that motor manufacturers are going to distribute, rate and underwrite insurance and they’re all going to do that, and all the people that buy are going to accept the virtues of the brand, then yes it’s a problem.

“But I don’t believe the market is going to go that way any time soon and actually what I think is more likely is that manufacturers will partner with insurers and brokers – more so insurers.”