Tesla and GM are looking to expand their presence in the car insurance industry.

• This year, Tesla aims to expand its insurance coverage to 45 states, currently offering plans in five.
• In many cases, EVs are costly to insure due to their speed and limited availability of skilled mechanics.
• Because the cars gather so much data, EV makers can insure their own products for less.
• This year, GM anticipates obtaining the initial state approvals for its OnStar insurance products that utilize safe driver technology.

This year, relief may come for consumers who find that expensive insurance is one of the challenges of owning an electric car.

By the end of the year, OnStar Insurance, which was revived by General Motors as its company-backed insurance unit in 2020, hopes to reach $6 billion in yearly insurance revenue.

Insurance is not likely to become the biggest business for either company, but it can help automakers' finance side drive innovation and make adoption easier by utilizing the data generated by the cars themselves to offer lower insurance prices and strengthen customer loyalty.

Tesla could insure 300,000 cars by 2025, according to Wedbush analyst Dan Ives.

According to CFRA Research analyst Garrett Nelson, EVs are expensive to insure due to their off-the-line speed, which makes traditional insurers hesitant, and partly because relatively few mechanics know how to fix them, they can be expensive to repair after an accident.

Nelson stated that Tesla is more comfortable with its own vehicles and this has set a trend, prompting GM and other companies to follow suit.

EV manufacturers are motivated by the opportunity to close the insurance gap with more data. As automakers use EVs as test beds for self-driving systems, insurers have better data about the risk each driver poses, which allows them to contain costs.

Tesla's insurance is now available in Florida, Texas, Illinois, Ohio, and California. The company aims to have its coverage accessible to 80% of U.S. customers by the year's end, as stated by chief financial officer Zach Kirkhorn during the company's recent earnings conference call, though state insurance regulations may impact this goal.

Tesla's cars provide the company with a wealth of information about how they are being driven, which allows Tesla to send guidance back to drivers in real-time, resulting in "quite a bit lower" accident rates.

Tesla Insurance uses informatics and real-time feedback to encourage safer driving and reward it financially, as Elon Musk, CEO, stated. This approach reduces insurance costs for safe drivers, which in turn motivates them to drive more safely.

Eliminating $10 billion in auto insurance ads

GM is expanding its insurance offerings by developing a safe driving behavior algorithm with American Family Insurance. The algorithm will be added to GM's traditional insurance offerings in Arizona, Illinois, and Michigan.

The GM spokeswoman stated in an email that the company's vision is to provide a more fair and personalized insurance product to its customers.

American Family Insurance is working with GM on state regulatory approval for data systems developed by the automaker, and the company anticipates receiving the approvals in the first half of 2022. As a result, the product is launching more quickly in those states, but it is similar to what is currently available from other insurers in the market. GM is acting as the agent, with American Family Insurance underwriting the policies.

Andrew Rose, president of GM's OnStar Insurance unit and vice president for insurance innovation, stated that one significant opportunity is to acquire insurance clients without increasing the $10 billion yearly spent on U.S. car insurance advertising, which is more than auto companies spend advertising cars.

By utilizing data generated by their own cars, GM can process claims more quickly than usual in the auto insurance industry. Instead of taking 18 to 25 days to settle claims, GM believes it can determine the extent of damage almost instantly and settle up fast.

Cycle time in claims is equivalent to money, and we can determine it quickly, but it may not be the right time to inform you while the airbag is still deployed.

According to Cathy Seifert, a CFRA insurance analyst, traditional insurers have been utilizing telematics for several years through wireless phone apps. She added that Rose and are among the fastest adopters of such systems, which deliver much more data than what GM is currently developing.

At Allstate, over two million customers are enrolled in telematics programs such as Drivewise and Milewise. In states where the plans are approved, 21% of our auto customers are currently enrolled, and 35% of new Allstate auto customers choose the plans, said David MacInnis, vice president, telematics & usage-based insurance.

MacInnis stated that the technology employs phone-based technologies such as GPS trails to monitor braking, speeding over 80 mph, and driving too fast for road conditions, in addition to the time of day clients drive and the total amount of driving a customer does.

Both usage-based car insurers went public in late 2020 and have struggled as publicly traded stocks after debuting in the red-hot IPO market of the past few years.

Car-based systems will be more accurate because they gather data directly from the car and can track factors like seat belt usage that cell phones cannot.

Tesla's insurance business will be "ancillary" in the short and medium term, according to Ives, but more important for promoting the purchase of EVs than as an independent profit center. The true significance of the insurance business will depend on the speed of the development of truly autonomous cars, which will provide a safer risk profile, allowing Tesla to offer coverage as part of a broader fusion of hardware and software that resembles Apple's famous ecosystem approach.

Ives stated that the objective is to reduce insurance costs by 30 to 40 percent. "That's the ultimate aim," he added.