Tesla is preparing to revolutionize the insurance industry, potentially paving the way for an unprecedented, high-stakes struggle between 2 of Wall Street’s most powerful tycoons, Elon Musk as well as Warren Buffett, in the most unlikely of battlefields. In 2019, Tesla released its first insurance service in California. It also moved to Texas last month, and the firm has plans to spread to additional states as well. Musk is entering a market populated by established firms such as Geico, a crucial component of Warren Buffett’s Berkshire Hathaway holdings, including State Farm, Progressive, as well as Allstate. While there is undoubtedly uncertainty that Musk will triumph, his track record should make every single one of those industry heavyweights sit up and take attention.
That isn’t to imply Tesla’s victory in auto insurance is certain. The corporate cemetery is strewn with unsuccessful insurance businesses who believed they could design a better mousetrap. However, Tesla joins the race with structural advantages that place it in a unique position to pose a significant threat to the sector’s status quo. For example, Tesla’s addition of vehicle insurance will enable it to entirely operate a vertically integrated business by building a network of services around its automobiles. Tesla owns production, direct distribution, insurance, and maintenance facilities in specific states.
Compare that tightly regulated environment to the traditional, disjointed automobile lifecycle: OEM manufacturing, franchised showrooms, the independent insurance business, and customer choice in repair facilities. It’s easy to see how ambiguity and inefficiencies enter the latter approach. Tesla can use its position to generate useful insights throughout the lifespan of a vehicle. It can create a car’s record to save future repair costs, provide a quick, touchless response to compensation claims, or employ numerous distributors to minimize value chain margin mark-ups. Musk can use such powers to customize every phase of the automobile ownership process.
It’s an ideal pairing in a business that is just now realizing that excellent insurance expertise, such as a decent claims record, has taken a second seat to an attractive brand. Automobile insurers now spend more than USD 10 billion on marketing each year, and for a legitimate reason. Customers may select from a variety of service providers who can provide several quotations in a couple of minutes. Changing companies is inexpensive. That starts to add up to a more informed typical auto insurance customer than ever before.
