In order to solve the problem of high premiums leading to a decrease in sales of new energy vehicles, Tesla has launched self operated insurance products by acquiring insurance brokerage licenses.
For new energy vehicle companies entering the insurance market, many industry insiders believe that car companies have a better understanding of the technology, risks, performance, and other aspects of new energy vehicles, and are more professional, which can better customize car insurance products and control cost rates. However, based on Tesla's disclosure of the financial situation of its insurance subsidiary, it seems that it is not as optimistic either.
A reporter from Huaxia Times noticed that Tesla Property& Casualty and Tesla General Insurance recently released their financial reports for the first three quarters of this year. In the first nine months of this year, the two companies achieved a total premium income of $66.52 million, but a total net profit loss of $16.31 million.
Not only Tesla, but also domestic new energy vehicle companies have entered the insurance industry in recent years, including Xiaopeng, Ideal, NIO, BYD, etc. However, new energy vehicles have a higher accident rate and average compensation amount than traditional fuel vehicles. Is entering the insurance industry a good business for car companies?
Car owners shout for high prices, insurance companies shout for losses
Based on the financial performance of Tesla's two insurance subsidiaries, Tesla Property& Casualty provides underwriting in Colorado, Maryland, Minnesota, Texas, and Utah, with a premium of $48.04 million for the first nine months of this year, but a net underwriting loss of $13.27 million.
Tesla General Insurance provides underwriting services in Nevada, Oregon, and Virginia, with a premium of $18.48 million for the first nine months of this year and a net underwriting loss of $3.04 million for the same period.
During an interview with the Huaxia Times, Zhang Yong, General Manager of Asia Pacific Property and Casualty Insurance's car insurance department, stated that compared to traditional car insurance, the pricing models for new energy vehicles still rely on the law of large numbers and require sufficient sample size. Even for giant companies like Tesla, the data volume is relatively small, and they and insurance companies also face problems such as price coefficient adjustment and high zero to whole ratio of some car models. At the same time, new energy vehicles themselves have a high accident rate due to their special construction and power performance. Even car companies that can customize car insurance products face significant business pressure when it comes to new energy vehicles.
In fact, as the renewal period of car insurance approaches, many car owners are bombarded by telephone sales from insurance companies. But for new energy car owners, on the contrary, they not only face rising car insurance prices, but also the possibility of being denied insurance by insurance companies.
"It's outrageous to quote me 7000 yuan for the first year's premium of 200000 yuan of new energy vehicles." A Shanghai car owner roast on the social platform.
Many consumers complain about the high cost of new energy vehicle insurance. A Xiaopeng P7 car owner said, "I have taken out two insurance policies in two years, both of which were just repainting. This year, the premium has directly increased to 11800 yuan."
Compared to the above two car owners, the other Tesla car owner's experience of purchasing insurance is even more difficult. Due to three consecutive years of insurance coverage, I was rejected by several large insurance companies. Finally, after multiple efforts, I prepared to apply for car insurance at Zhejiang Commercial Property and Casualty Insurance. However, I was unable to issue the policy and was unable to purchase it. In the end, I renewed my insurance at Ping An Property and Casualty Insurance for 8500 yuan.
A new energy vehicle salesperson told a reporter from Huaxia Times, "Even for the first insurance coverage of new energy operating vehicles, many insurance companies do not sell them, and the accident rate is high. It is difficult to buy insurance for new energy operating vehicles now. If you change the insurance company for renewal, it is basically impossible to buy insurance."
Zhang Lei, founder and CEO of Cheche Technology, told a reporter from Huaxia Times that operational new energy vehicles far exceed self use and household new energy vehicles. Operational new energy vehicles, represented by ride hailing services, have a very high mileage and frequency of use, thereby increasing the accident rate and compensation rate.
In fact, new energy vehicle insurance has always faced a dilemma of "insurance companies shouting losses, car owners shouting high prices". In the view of industry insiders, the main reasons are the high accident rate and high maintenance costs of new energy vehicles.
Zhang Yong told a reporter from Huaxia Times that in recent years, the development of new energy vehicles in China has been rapid, and the penetration rate has been soaring year by year. This is thanks to the subsidy policies of the national and local governments. In some regions, the subsidy is very strong. However, when calculating the car damage insurance premium, the insurance company will refer to the factory price rather than the actual price paid by consumers after receiving the subsidy, so car owners will feel that the premium for new energy vehicles is relatively high.
"The accident rate of new energy non operating vehicles is nearly 10pt higher than that of fuel non operating vehicles, while the accident rate of operating vehicles is more than twice that of fuel operating vehicles. The industry's expected payout rate for new energy vehicles was originally around 85%, which is 10% higher than that of fuel vehicles. This is determined by the special performance and customer group of new energy vehicles. Although we have launched exclusive clauses for new energy vehicles, the insurance company is still cautious about this business, so the pricing is relatively high," said Zhang Yong.
Moreover, new energy vehicles are composed of three electrical systems (battery, motor, and electronic control), and in the event of accidents, they often need to be replaced and repaired, resulting in high maintenance costs. However, insurance companies generally do not have bargaining power, so they bear higher risks, which can also lead to higher premiums.
"New energy vehicles use original parts and highly integrated modules, and the core power system consists of a three electric system, which accounts for 50% of the total vehicle cost. Among them, the battery accounts for 76% of the cost of the three electric system. In addition, some car companies have not fully considered accident factors in the design of new energy vehicles, such as installing radar in areas that are prone to damage such as bumpers and leaf plates. Even in the event of a minor collision, the radar needs to be replaced due to damage, resulting in extremely high maintenance costs. This is also related to design experience," Zhang Lei told a reporter from "Huaxia Times".
Difficulty in precise pricing
Accurate pricing is a major challenge for new energy vehicle insurance. "There are significant differences in the body structure, component construction, power system, and other aspects between new energy vehicles and traditional fuel vehicles, and there are also significant differences between different brand car series, which increases the difficulty of pricing." Zhang Yong told the Huaxia Times reporter, and most new energy vehicles are mainly concentrated in developed coastal provinces in the east and provincial capitals in the central region. When modeling by region, there may be insufficient data for most regions.
Zhang Lei admitted that it is difficult for insurance companies to estimate costs in a timely manner due to the changes in risks brought by the introduction of new energy vehicles. The rapid iteration of new energy vehicle technologies is constrained by the professional limitations of insurance company technicians and limited human resources, making it difficult to respond promptly to various emerging technologies in the short term. This increases technological barriers and prolongs the time for insurance companies to conduct risk assessments on new technologies.
Moreover, Zhang Lei pointed out that insurance companies suffer from a severe lack of data in the field of new energy vehicle insurance. Insurance companies with insurance qualifications and operational capabilities do not have sufficient data, while those with sufficient data do not have insurance qualifications and operational capabilities with big data monitoring platforms. The three parties are deeply trapped in data barriers and it is difficult to achieve comprehensive cooperation.
In Zhang Yong's view, solving these problems is not a one-time solution, but there are several ways to try. Firstly, based on the rapid development of new energy vehicles, the increasing updating of brand car series, and significant risk differences, the iteration and updating frequency of pricing models for new energy vehicles must be increased. The second is to dig deeper into the underlying logic behind the pricing factors based on the high accident rate and payout rate of new energy vehicles, so that the model can more objectively display and evaluate the risks of different regions and brands of new energy vehicles. Thirdly, the insurance company can increase its overall cooperation with new car manufacturers and large OEMs, and explore proprietary actuarial models through data collision between insurance and OEMs. Fourthly, we will continue to improve the terms of new energy vehicles, such as studying the online vehicle electric separation clauses. Based on the characteristics of the new energy vehicle vehicle electric separation technology model and business model, we will start with underwriting, investigation, and loss assessment, and develop standardized and standardized underwriting and claims operation practices. These measures all contribute to a more scientific pricing of new energy vehicles.
At the 2023 Investor Conference, when asked about car manufacturers starting to compete for car insurance business, Buffett once again said, "This is not a new idea, nor is it a good business.".
However, in Zhang Lei's view, the core purpose of new energy vehicle companies, whether through holding shares in insurance companies or acquiring insurance intermediaries, is not to earn commissions, but to achieve a closed-loop user service and become a "cake" of the car owner ecosystem. Therefore, car insurance has also become an important tool for establishing long-term interactive relationships between car companies and car owners.
Zhang Lei stated that in terms of scale, a premium of 1 billion yuan and channel commissions of only about 50 million yuan are not the main sources of profit for car companies. So new energy vehicle companies urgently need digital functions such as one click insurance, one click renewal, and one click reporting, and integrate these functions into their application apps and in car screens. Through integration, car companies can directly meet user needs, establish a full process service loop, and form a closed-loop experience for users in the process of using, charging, repairing, reporting, and claiming.
"There is still a long way to go for car companies to truly do a good job in car insurance. If we assert that car companies can overturn the car insurance market, I think it is still too early." Zhang Yong told a reporter from Huaxia Times. However, from the long-term development of the industry, we are happy to see more changes in the car insurance market. Because this will bring vitality to the development of the industry and also bring benefits to consumers.