Elon Musk sends rockets into space, but is he smart enough to run an insurance company?
Is Elon Musk smart enough to run an insurance company?
Elon Musk sends rockets into space, but is he smart enough to run an insurance company? There's no question about Elon's financial ability to bankroll an insurance business. His $84 billion fortune makes him worth more than the combined value of QBE, IAG and Suncorp.
In between launching rockets and announcing his support for Kanye West's presidential bid, Elon Musk has named insurance as the next industry he is going to disrupt.
Elon plans to build a major insurance company and use the data captured while driving your car â€œto be able to assess correlations and probabilities of crash.
According to Elon, the data gathered from Tesla's vehicles can be used to offer premiums that are lower than traditional insurers. The vision outlined by Elon is the holy grail for insurance companies: Using data to predict claims.
But there are two problems:
Privacy Laws - Do you really want Elon Musk knowing that you have a lead foot and apply lipstick while driving?
That random crazy driver who rams into your Tesla - No amount of driver data can predict when you are going to be unlucky. Another challenge for "Tesla Insurance" is that it's only for your Tesla. You will have to insure your BMW and Porsche elsewhere. That could be a big problem. You will lose your multi-policy discount and have the bother of dealing with another insurance company.
What surprises me about Elon's vision for "Tesla Insurance" is his focus on price.
What does the Tesla brand mean to you? To me, its technology, luxury and high performance. Tesla is not a budget brand. Tesla competes with the BMW M3 and Mercedes AMG.
So why is Telsa Insurance going to be cheap and cheerful?
Elon Musk is correct in his thinking that insurance is a sitting duck for him to disrupt and gobble up a significant market share. But I don't think price should be his focus.
There are many clunky things about insurance that Elon could improve. Tesla Insurnace should provide the Tesla experience and remove these quirks, for example:
Paperless insurance: No claim forms or proposal forms
Door-to-door pick up and return when your Tesla needs to be repaired
Replacement Tesla when your Tesla is in the workshop (no more Hyundai hatchback!)
I am sure that people with $124,990 to pay for a new Model S would be prepared to pay a little extra to protect their pride and joy.
Competing on price is easy. Revolutionizing insurance is a massive challenge. If anyone can do it, Elon can.
But Elon should remember, nobody ever bought a Tesla because it was cheap.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Nathan Rayner.