Despite its current woes, there's no doubt that Tesla is an innovator and market disruptor. Having driven some mass-market adoption of electric vehicles, the company continues to explore ways in which to enrich its offering. Its decision to bypass traditional insurers and offer its own insurance product is one such initiative. A deliberate strategy that should serve as a wake-up call for the entire insurance industry.
Much like Uber's move into the taxi cab sector, Tesla Insurance signals a shift that could upend the insurance market. Even if it's not successful it's another red flag that the insurance market isn't keeping pace with the connected, data fluid, and intelligent potential already inherent in the automotive sector.
At its core, Tesla sidelining insurers exposes a fundamental flaw: most carriers simply aren't built to meet the expectations of companies that operate in a digital, data-driven world. Tesla's vertically integrated model allows it to harness real-time driving data, optimize pricing, and deliver a frictionless experience that redefines how insurance can be priced and delivered. It's something customers have been crying out for and yet, legacy insurers, burdened by outdated systems and operational silos, will struggle to match.
Tesla's move isn't about cutting out the middleman, it's a direct response to an industry that's failing to evolve. Traditional insurers are locked into rigid, fragmented models that make real-time, dynamic pricing impossible. The real question isn't why Tesla is doing this, it's, why aren't insurers ready for this shift?
The answer is pretty fundamental. Insurers are built vertically into products - "paper" based concepts we call policies. For each of those policies they have value chain business models that focus on minimizing costs and maximizing distribution.
On Top of this, insurers build further verticalized customer experiences, where the policy offered to the customer is built one-off and doesn't typically share resources, technologies and services with other policies. This creates a monolithic policy structure, which reduces the insurer's ability to adapt these offerings. Then, with the advent of digital, insurers also created entire technology architectures, which are stacked on top of modern legacy policy administration systems, ultimately doubling the complexity of changing or adding to these offerings.
This Frankenstein approach to architecting insurance technology has had obvious consequences. It created complexity, it siloed business models around products but most importantly it sidelines the customer. This means that all of its operational data, which constitutes a highly valuable but extremely perishable asset, outside of actuarial analysis, is trapped inside the policies.
Worse, because these technologies and architectures aren't fluid, the data availability and data model is also then built on top as well. These slow and hard to change models then struggle to look at connected, real-time and adaptive propositions. Models like integrating with cars that are now capable of self-reporting a claim, providing data capable of managing an entire repair process, or simply usage based insurance. This type of incredibly valuable and highly sought after opportunities become complex and hard to justify.
Critically, this is much wider than cars. Some estimates suggest that by 2030 there will be 75 billion IoT devices in operation, leading to similar potential in homes, buildings, pet smart collars, travel, health and so on.
Building ecosystems capable of reinventing insurance, and its continued role in enabling us to face risk and prosper is more important than ever.
Connected, intelligent and customer centered insurance relies on new foundations. We need to build insurers on platforms that are modular and adaptable, and make building entirely new propositions possible. They need to be architected in open models that utilize APIs to build multiple connections. They must be scaled by being truly cloud native, and able to adopt technologies in the cloud to create efficiencies. They must be headless, making sure experiences can be managed around the customer, using event streamed data to make every moment count.
Until around four years ago there wasn't the core technology in place to do this. But there is now. The insurance industry has an opportunity to bring what the likes of Tesla can't: the insurance proposition and actuarial data muscle. When combined with these automotive ecosystems, this capability can be scaled across multiple travel ecosystems, eventually addressing shared car ownership, autonomous vehicles, and multi-modal transportation usage. This will ensure that people driving to train stations, then on trains and onto cabs and other forms of public transport are always insured.
Tesla is just a flare. It's shedding a light on what's possible. It's showing us that connecting lives with our things has the potential to reshape many industries, and insurance has to adapt to this fast.
