Commentary/Opinion
Why Tesla Insurance Will Flop
Even as the decision to bring underwriting in-house is generating enthusiasm, a host of issues means Tesla Insurance will flounder.
Tesla's recent announcement that it is bringing underwriting in-house for its car insurance unit generated enthusiasm about the prospect of taking data-driven auto insurance to the next level. But I have a different take.
I agree that what Tesla is doing is the next logical step in having sensors in cars feed data about driver behavior directly to underwriters to improve their understanding of the risks. In time, that path could take us to a world where behavior is being monitored in real time and feedback provided to drivers in the form of higher or lower premiums. Encouraged to be careful, those drivers could make the roads safer for all of us.
But I don't think Tesla is the right, well, vehicle for that next step, for a host of reasons.
I'll explain.
Paul Carroll, editor-in-chief, Insurance Thought Leadership
News
Product Recalls Dip Slightly But Remain Historically High: Sedgwick - Risk & Insurance : Risk & Insurance
Product recalls dipped slightly in 2024, yet total events hit second-highest mark in six years across major industries, according to State of the Nation 2025 Product Safety and Recall Index.
Product recalls across five major industries saw a slight dip in 2024, yet the total number of events marked the second-highest annual figure in six years, according to the Sedgwick State of the Nation 2025 Product Safety and Recall Index.
Across five major industries, there were 3,232 recalls, representing a 2.1% decrease from the 3,301 events recorded in 2023, which was the highest total in recent years. The total volume of recalled units fell by 10.3%, from 759.36 million in 2023 to 680.87 million in 2024, marking the lowest annual total since 2015, according to the index.
Research
LexisNexis® U.S. Insurance Demand Meter Reports Continued Hot Streak with "Nuclear" U.S. Consumer Shopping and "Sizzling" New Policy Growth
For the third consecutive quarter, U.S. auto insurance shopping remains "Nuclear," according to the LexisNexis® Risk Solutions U.S. Insurance Demand Meter, while new policy growth registered at a "Sizzling" level. Insurers saw 18% more consumers shopping in 2024 compared to 2023 levels. A combination of consumers seeing their rates increasing in conjunction with carrier-led marketing campaigns promoting lower premiums helped entice policyholders into the market. Compared to their behavior in previous quarters, those shoppers didn't necessarily switch their policies.
Key Takeaways
- Consumers Continue to Shop: As of December 31, 2024, 45% of policies-in-force were shopped at least once in the last 12 months.
- Shopping and New Policy Growth Increased Year-over-Year: Shopping grew 26% in Q4 2024, while new policy growth was 17.7% in Q4 2024.
- Insurance Not Included in Holiday Shopping Lists: Similar to prior years, the number of new policies issued dropped in November and December in 2024 as consumers shifted their focus to the holiday season. However, Q4's drop was greater than in previous years, likely as a result of increased rate parity across carriers in the market, which likely hampered consumers' ability to find lower rates.
Key Observations
"In the first half of 2024, when consumers shopped their policies, they were looking for opportunities for discounts and were willing to switch. At that time, insurers saw the growth of carrier switching outpacing the growth in shopping because it was easier for shoppers to find more favorable premiums," said Chris Rice, vice president of strategic business intelligence, insurance, LexisNexis Risk Solutions. "However, that trend reversed in the latter half of 2024, with shopping growth outpacing new business, as carriers in a number of states had implemented rate increases, making it harder for consumers to find savings attractive enough to follow through and switch."
Economic and financial risk insights: Geopolitical and tariff uncertainties dominate as Trump hits the ground running | Swiss Re
US relative outperformance set to persist; tariffs present downside risks. The US economy has started the year on firm footing with still-solid jobs growth and declining unemployment last month (see Figure 1). The main growth drag from protectionist policies will likely show in 2H only, and we expect 2025 GDP growth to remain above long-term potential (we estimate the latter at 1.9%). Our baseline continues to assume broad-based tariff increases by the US on China and selective, reciprocal tariffs on other countries, with retaliation posing a larger threat to US growth than to inflation.
Key takeaways
- Growth: US growth outperformance is set to persist despite higher protectionism. Increasing trade tensions will continue to constrain already-weak growth prospects in Europe and China.
- Inflation: US inflation pressures may prove stubborn as a result of the new administration's policies. Euro area disinflation is broadly on track, with risks skewed to the downside.
- Interest rates: We expect the Fed to slow the pace of rate cuts; the ECB's cutting cycle remains on track. We largely maintain our existing long-dated bond yield forecasts.
Telematics, Driving & Insurance
Tesla Insurance is Based on Driver Behaviour, Not Asset Values -
Tesla driving forward with its insurance plans shouldn’t really come as a surprise. Its ecosystem-based business model (often incorrectly referred to as “vertical integration”) and CEO are both highly consumptive.
This model is predicated on increasing the knowledge of your customer and acting on it in the best interests of Tesla and its customers.
When broken down further, this move is one I’ve been anticipating in the auto space for some time. Moving from car ownership-based models to lease, lease purchase and even car share models sees car manufacturers competing on loans and payment schemes.
Creating cars that are connected and data driven made them software businesses as well. So it’s logical they evolve beyond manufacturers to become customer-centred providers of personalised transportation.
The next step in this process is to own and control as much of the lifecycle as they possibly can. Which includes insurance.
The advantage was always gaining greater control over repair expenses and decisions regarding total vehicle losses, ensuring repairs adhere to its standards while potentially reducing costs.
The critical question is, why is insurance something Tesla feels comfortable entering. It’s risky, capital intensive and complex. That doesn’t sound particularly attractive.
Rory Yates, Global Strategic Lead at EIS
Claims
New pain medication to impact comp industry - Business Insurance
The newest nonopioid drug to manage acute post-surgical pain is expected to impact the workers compensation industry, as it likely will cost more than generic drugs often used for pain relief, according to experts.
The U.S. Food and Drug Administration on Jan. 30 approved Journavx, or suzetrigine, for up to two weeks of pain management. It is the first drug to be approved in a new class of nonopioid analgesics to treat moderate to severe acute pain in adults.
The drug reduces pain by targeting a pain-signaling pathway involving sodium channels in the peripheral nervous system before pain signals reach the brain, according to the FDA.
“The drug itself does not pose the same level of safety concerns that opioids do (and) it’s going to have significant utilization in workers comp because it is a safer alternative,” said Silvia Sacalis, Tampa, Florida-based vice president of clinical services for Healthesystems LLC.
She cautioned that it “remains to be seen” how the drug will work when taking into account comorbidities common in workers comp, drug interactions with other drugs patients may be taking, and other unknown side effects that could emerge as more people are prescribed the drug.
The science behind the way the drug works ensures it does not have the addiction properties common with opioids, which access neuropathways in the brain, said Dr. Michael Choo, Walnut Creek, California-based chief medical officer, workers’ compensation, with Paradigm Corp., which provides catastrophic comp services for injured workers.
InsurTech/M&A/Finance💰/Collaboration
Xceedance Acquires CIS Claim Services, Expanding Offerings to Insurers | Insurance Innovation Reporter
The acquisition adds specialty property claims appraisal, field adjusters, and litigated claims management capabilities.
Xceedance (Boston), a provider of strategic operations support, technology, and data services to the global insurance industry, has announced its acquisition of CIS Claim Services, the claims business of CIS Group (Southlake, Texas). With this property/casualty claims platform expansion, Xceedance reports that it is welcoming 155 new team members, growing its team to more than 550 in the Americas and 4,000 worldwide.
The acquisition expands the Xceedance specialized claims platform to include alternative dispute resolution (ADR), litigated claims management, and a wider field adjuster network. These specialized offerings complement what the vendor calls the highly successful Xceedance practice in desk and virtual adjusting, end-to-end TPA services, and claims administration.
Climate/Resilience/Sustainability
Building Resilient Homes While Keeping Homeowners Coverage Up to Date
It's important that homeowners who undertake home improvements talk to their agent about what they're planning to do or what they have done to better understand how that affects their insurance premiums and coverage.
Every year, severe weather highlights how susceptible people and their homes are to the wrath of Mother Nature. In 2024 alone, there were 18 named storms during hurricane season, 11 of which became hurricanes with winds of 74 mph or greater, according to the National Hurricane Center.
Florida was hit by three different hurricanes in 2024, with Hurricane Helene expanding and destroying whole communities across six states in the Southeastern U.S. and claiming 230 lives. Helene was followed a week later by Hurricane Milton, which caused further destruction in some of the areas that had just been hit by Helene.
It has become evident that not all homes are built to withstand the destructive nature of certain storms, underscoring the importance of modern construction methods to help withstand the forces of nature.
“While we can't stop natural disasters from happening, we can improve our resiliency efforts so communities can better withstand them," says Steve Hylka, senior vice president of property product state management at Liberty Mutual and Safeco Insurance. “It starts with building and repairing homes to code."
Many states have regulations to help ensure home safety and resilience during and after storms. “In particular, states like Florida have very strong codes with wind mitigation requirements that have proven to reduce damage," Hylka says. “Additionally, many insurance companies offer discounts for wind mitigation features. Similar can be said for fortified homes and hail-resistant roofs in other parts of the country."
Resilience strategies provide long-term savings for homeowners and insurers alike, according to Rocky Mountain Institute (RMI), a nonprofit organization. These strategies range from minor home investments like landscaping updates to more complex home upgrades, such as foundation elevation.
Los Angeles Wildfires
Insurance commissioner questions State Farm's emergency property rate hikes
[Ed. note: Rate suppression is one of the root causes of an unstable insurance market in CA. Following the LA wildfires, CA Insurance Commissioner mandated a 1-year no non-renewal moratorium, while good for consumers, places insurers in a vice.]
California Insurance Commissioner Ricardo Lara (pictured) has said that State Farm General Insurance Co. has not provided sufficient evidence to justify emergency property rate hikes ranging from 15% to 38%, according to a report from AM Best.
In a letter dated Feb. 14, Lara questioned why the company, a subsidiary of State Farm, had not sought assistance from its mutual group and requested further clarification on how rate increases might affect decisions regarding nonrenewals or new business.
Lara’s letter also raised concerns about the company’s significant decrease in policyholder surplus, despite the absence of catastrophic losses from wildfires in 2022 and 2023. He asked State Farm to explain how it had managed the surplus between May 2023 and the present and what measures had been taken to address its financial position, particularly given the company's statement that rate hikes alone would not be enough.
While acknowledging the losses incurred from the catastrophic wildfires in January, Lara rejected recommendations from the California Department of Insurance staff for interim rate approval.
State Farm General, which is seeking immediate approval for rate increases, cited losses of $1 billion following the January wildfires in Los Angeles, with expectations that those costs will rise significantly.
Consumer Watchdog Agrees With Insurance Commissioner Lara That State Farm Needs To Provide More Information Before Getting Rate Hike, But Should Be Provided in Full Hearing
Consumer Watchdog said that Insurance Commissioner Lara is right in asking for more information from State Farm before approving its request for an emergency rate hike, but that he needs to get the answers through the public hearing process prescribed by insurance reform Prop 103, not a private meeting with the company.***
The group said that State Farm needed to update its rate application with all the relevant information, which it so far refused to give to the Department of Insurance or Consumer Watchdog. The group, which is intervening in the case, said that the final determination should be made in a formal hearing so that there is a public record and public scrutiny.
"The Commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests," said Pam Pressley, Consumer Watchdog's senior attorney on the case. "However, the outstanding issues need to be raised and answered in a formal hearing, which Consumer Watchdog has called for, where there is formal discovery and due process rights. Lara's refusal to approve this interim rate hike confirms Consumer Watchdog's objections that State Farm needs to provide more data, but it needs to do it in a public hearing, as required by insurance reform Prop 103. We do not agree that the insurance commissioner has the power to approve an interim rate hike without a public hearing."
State Farm is seeking an immediate 22% rate increase for homeowners, along with a 15% increase for renters and condo owners and a 38% increase for rental dwellings—not because it cannot pay wildfire claims, but because it wants to protect its Wall Street credit rating. However, as Consumer Watchdog's February 5 letter states, S&P Global rates State Farm and its parent company, State Farm Mutual which has $194 billion in surplus and reserves, together. They have an AA rating, the second-highest possible rating.