Tesla enters the insurance brokerage and how to solve the problem of new energy vehicle insurance pricing

Our reporter Jiang Muyun and He Shasha report from Shanghai and Beijing

Recently, Tesla's establishment of an insurance brokerage company has received great attention from the industry.

Several industry insiders told reporters from China Business News that compared to the investment costs of traditional insurance companies in sales channels, especially in the current context of "integrating reporting and operation", car companies have more obvious advantages in entering the car insurance brokerage business. If car companies can further obtain insurance licenses in the future, they will be able to achieve better cooperation among insurance, insurance brokers, and car sales.

It is worth noting that Tesla's entry into the insurance industry has aroused market attention to new energy vehicle insurance. Industry insiders told reporters that due to the lack of data on new energy vehicles by insurance companies, and the higher maintenance costs and accident rates of new energy vehicles compared to gasoline vehicles, new energy vehicle insurance is facing multiple challenges such as high premiums, difficult insurance coverage, and difficult profitability. Reporters have learned from multiple sources that the industry is currently attempting to expand pricing dimensions and explore more effective and reasonable pricing mechanisms through multi-party collaboration.

Car companies compete to enter the insurance industry

According to the National Enterprise Credit Information Publicity System, Tesla Insurance Broker (China) Co., Ltd. was established on July 30th with a registered capital of 50 million yuan. It is wholly owned by Tesla Insurance Services Co., Ltd., with Zhu Xiaotong serving as the legal representative and chairman. Regarding Tesla's plans for its insurance brokerage business and whether it plans to obtain an insurance license in the next step, the reporter sent an interview letter to them, but as of the time of publication, no response has been received.

In fact, besides Tesla, in recent years, there have been continuous car companies, especially new energy vehicle companies, entering the insurance industry. In terms of insurance brokerage, BMW (China) Insurance Brokerage Co., Ltd. will open in March 2024; In December 2023, China Changan Automobile Group Co., Ltd. invested in Beijing Zhongbing Insurance Brokerage Co., Ltd. Earlier, car companies such as Ideal Auto and NIO have obtained insurance brokerage licenses. In terms of insurance companies, BYD gradually began to form an executive team after acquiring shares of the original Yian Property and Casualty Insurance in May 2023, and finalized the selection of the general manager in March 2024.

Industry insiders believe that after entering the insurance brokerage field, most car companies hope to further obtain insurance licenses and thus gain pricing power over insurance products.

In response to this, Dai Haiyan, director and general manager of Lvshang Lianxun Risk Information (hereinafter referred to as "Lvshang Risk"), told reporters that whether car companies that have already obtained insurance brokerage licenses will apply for insurance licenses in the next step depends on their strategic planning, market positioning, business situation entering the insurance market, and regulatory requirements. For car companies, holding an insurance broker license and an insurance license can form multiple ways of cooperation. Firstly, in terms of business collaboration, car companies with insurance licenses can independently design insurance products or collaborate with specific insurance companies to launch insurance plans specifically for their own vehicles. And insurance brokerage licenses can help them better promote and sell these products. Secondly, in terms of channel sharing, car companies' sales networks are usually spread across the country, which can provide strong support for the coverage of their insurance business. Finally, from the perspective of customer service experience, when consumers purchase vehicles, they can be provided with one-stop car purchase and insurance services, enhancing brand appeal and increasing customer loyalty by offering comprehensive solutions.

Yang Jing, Director of Corporate Ratings at Fitch Ratings Asia Pacific, told reporters that new energy vehicle companies incorporating car insurance into their self operated service system can improve the accuracy of car insurance pricing by controlling owner and vehicle data; On the other hand, it is possible to bypass third-party insurance companies and directly respond to market competition by flexibly adjusting car insurance prices. In the early stage of the popularization of intelligent driving systems and the fiercely competitive market environment, this is particularly important for brand competitiveness. In addition, some new energy vehicle brands package and sell some after-sales value-added services when selling cars. In the future, combining these services with car insurance products may become a new profit growth point for car companies and improve the after-sales service stickiness of car owners. In traditional dealer business, the profitability of after-sales service is much higher than that of new car sales.

What are the competitive advantages and disadvantages of car companies compared to other entities in the insurance industry? Dai Haiyan told reporters that the development of car insurance business by new energy vehicle companies can indeed introduce a new force into the car insurance market, and the unique advantages of car companies will bring changes to the industry. Firstly, there is the advantage of data. Car companies can obtain a large amount of data about car owners' driving habits, vehicle usage, and other factors, which have extremely high value for pricing and risk assessment of car insurance; Next is product customization. Based on a deep understanding of their own products, car companies can customize car insurance products that are more in line with the characteristics of new energy vehicles, providing car owners with more comprehensive and accurate protection; Finally, there is customer experience. Car companies can integrate car insurance services with sales, after-sales, and other links into a complete ecosystem of cars, providing a more convenient and integrated service experience.

Gan Yutao, Executive Director of Beijing Xinke Financial Development Research Institute, told reporters that overall, car companies have advantages in the industrial chain. On the sales side, compared to traditional insurance companies investing in sales channels, especially in the current context of "reporting and banking integration", car companies have more obvious advantages in entering the car insurance brokerage business; On the claims side, the difficulty and cost of claims for new energy vehicle insurance are high. Compared to insurance companies, car companies can reverse customize battery packs and accessory packs based on the claims logic of new energy vehicles, which insurance companies do not have; On the server side, the weakness of traditional insurance companies is that they reach fewer customers, while car companies have more time points to reach customers throughout the year, which can better customize service products and increase customer stickiness, preparing for future customized car insurance.

High insurance premiums and difficulty in obtaining insurance coverage

One major factor that has attracted attention for Tesla's entry into the insurance industry this time is that the pricing issue of new energy vehicle insurance has always been a focus in the industry. On the one hand, consumers need to pay higher insurance premiums than gasoline cars; On the other hand, insurance companies find it difficult to achieve profitability in the new energy vehicle insurance business. The reporter learned from multiple sources that in addition to the phenomenon of high premiums, some insurance companies have a "one size fits all" policy for new energy vehicles, such as not purchasing insurance for new energy vehicles in different locations or for certain models of new energy vehicles.

So, what are the reasons for this industry phenomenon? Wang Changtai, Senior Director of Asia Pacific Insurance Agency Rating at Fitch Ratings, told reporters that the new energy vehicle market is still in the development stage, and insurance companies generally lack sufficient historical data to accurately assess risks, resulting in pricing uncertainty. In addition, the parts and maintenance costs of new energy vehicles are usually high, especially for batteries and other high-tech components, which leads to an increase in claims amounts. Insurance companies may increase premiums to avoid underwriting loss risks.

Xi Ranran, the general manager of Beijing Xiaozhu Fuche Technology Co., Ltd., also pointed out that from the perspectives of household and commercial vehicles, although the former has high insurance premiums, there are still insurance companies that can provide coverage; The latter is expensive in premiums, but there is no insurance company to provide coverage. The main reason for the high premium is the high occurrence rate and payout ratio. Compared to gasoline powered cars, which are "repairable but not replaceable", new energy vehicles, especially those with all aluminum body materials, can only be replaced after an accident. In addition, the accessories are monopolized by manufacturers and do not circulate like fuel car accessories, resulting in overall high pricing.

However, regulatory authorities have also noticed a series of phenomena and are promoting the formulation of relevant policies. Recently, the State Administration of Financial Supervision and Administration of China issued a notice on promoting the high-quality development of new energy vehicle insurance (draft for comments), which intends to relax the range of independent pricing coefficients for new energy commercial vehicle insurance of insurance companies.

In Gan Yutao's view, the expansion of the autonomous pricing coefficient has amplified the autonomy of the actuarial team of insurance companies, making new energy vehicle insurance more "market-oriented" and promoting passenger cars to a certain extent. However, the difficulty of insuring commercial vehicles is still high, and many new energy commercial vehicles can only barely submit compulsory insurance to maintain the situation. In the future, it is still necessary to find a win-win point for car owners, insurance companies, and new energy vehicle companies.

Wang Changtai stated that increasing the independent pricing coefficient of new energy commercial vehicle insurance will encourage more insurance companies to invest more resources to improve their pricing ability for new energy vehicle insurance, thereby increasing the accuracy of the pricing benchmark for new energy vehicle insurance in the entire industry. However, it should be pointed out that new energy vehicle technology updates rapidly, and insurance companies need to continuously collect data, adjust their risk assessment and pricing strategies, all of which pose challenges to the auto insurance industry.

The reporter learned that various parties are also seeking and exploring solutions to the difficulties in the industry.

For example, Law Firm Risk has launched a dedicated database for new energy vehicles, helping insurance companies understand the risk exposure characteristics of new energy vehicles from multiple dimensions such as vehicle type, battery type, motor power, and battery capacity. Through this database, insurance companies can more accurately assess the risk level of new energy vehicles, providing strong support for subsequent insurance product design.

In addition, the Internet insurance agency platform "Ant Insurance" has recently cooperated with several insurance companies to jointly develop and launch the "joint pricing" technology for auto insurance. Zhang Yiwen, the head of Ant Insurance's new energy vehicle business, told reporters, "The original pricing of car insurance was based on the dimension of the car, pricing was determined through relevant data of the car, and for user data, it was a static dimension. However, whether the vehicle was actually driven by the policyholder and how their driving habits were? These data are not available to the insurance company, so we linked with the insurance company to establish a relatively reasonable pricing based on the relationship between people and vehicles and between people

It can be seen that many exploration directions in the industry have similarities with overseas UBI (Usage Based Pricing Insurance) car insurance. So, can overseas insurance experience provide reference for domestic new energy vehicle insurance?

Regarding this, Wang Changtai stated that using the UBI car insurance model has multiple advantages, such as accurate risk assessment allowing insurance companies to price more fairly, encouraging safe driving, and reducing claims fraud. In UBI mode, premiums are based on driving behavior, and drivers who drive safely can enjoy lower rates. In addition, this model charges based on the actual mileage traveled, allowing drivers who drive less to save costs. In other words, insurance companies may also experience a decrease in car insurance premium income due to the UBI model. In addition, implementing the UBI model requires the installation of remote information processing equipment, which may increase operational costs in the early stages of implementation. Under this pricing mechanism, there are also legal issues related to privacy and data ownership.

The above content is sourced from China Business News