Tesla Scores with Safety Program – Driving Behavior Determines Premium


During its quarterly earnings call, Tesla divulged the launch of its telematics insurance in Texas. Tesla Insurance rolled out a Safety Score program, with plans to actively track driver behavior to presage the likelihood of a collision. The program will be fine-tuned as they receive more data, ostensibly setting them apart from competition in the growing telematics-based insurance. Tesla Insurance was first offered in California last year. However, the Safety Score feature will only be used in the Lonestar State, making the coverage unlike that in California, where extant laws have shackled its technology.

Drivers in Texas will not pay premiums predicated on their credit, age, gender or even their claims history. Savings could reach 60% of premiums, though average savings would range between 20-40%. The reason? Tesla trusts its cars’ advanced safety features and is empowered by driving data harvested from its vehicles. By proactively communicating to the user the driving adjustments needed, probability of a collision is reduced.

Automaker-offered programs are expected to curtail substantial expenses driving up premium costs and offset increased severity from vehicle technology. Generally, 65% of premium dollars cover true loss costs, 15% loss adjustment and administrative costs,15% marketing costs and agent commissions, leaving a 5% margin. By leveraging telematics, improving automation, customer self-service, margins could cross 35%. The savings would, in turn boost discretionary income on additional OEM offerings.


Tesla introduced safety scores with the Full Self-Driving Beta version. The premium that needs to be paid can change each month based on conditions the driver encounters on the road. Every forced collision warning and forced Autopilot disengagement potentially affects the safety score. Following other vehicles from an unsafe distance, braking too hard and turning corners aggressively could lower the score, as well.

When individuals apply for a quote, the automaker initially assumes a 90 safety score to start their policy. The subsequent price depends on the client’s performance after that, and it could be higher or lower than what a traditional provider charges. When Tesla launched its FSD Beta software to the public, only 1,000 drivers had a perfect safety score according to Musk. While 150,000 cars are now part of the Full Self-Driving (FSD) beta enrollment program, only a fraction of drivers have been given access to the software.

Since their cars are connected, Tesla has been able to use humongous amounts of data to assess the key attributes of drivers and its correlation with safety. Having gathered 100 million+ miles of driving data, its analysis shows that the probability of a collision for a customer using a safety score versus someone who is not using the safety score is 30% lower. This enables individualized pricing that’s integrated into the car, the app and the customer’s experience, alongside notifications to the driver on driving adjustments needed to reduce the probability of a collision during each drive.

There are five Safety Factors that impact the Score and are measured using vehicle sensors and Autopilot software:

  1. Forward Collision Warnings per 1,000 Miles
  2. Hard Braking
  3. Aggressive Turning
  4. Unsafe Following
  5. Forced Autopilot Disengagement

To calculate the daily Safety Score, a Predicted Collision Frequency (PCF) formula is used to predict how many collisions may occur per 1 million miles driven. The formula was derived based on statistical modelling using 6 billion miles of fleet data.

Tesla intends to create a technologically advanced, vertically integrated transport company based on software and machine learning. Many analysts compare it with what Apple has achieved, as a hardware company that transitioned to a software hybrid model. In Tesla’s case, autonomous vehicles and a smart insurance business model should drive much higher margins as EVs come to represent 25% of total sales, notwithstanding the regulatory hurdles it needs to navigate in its path to an autonomous robo-taxi fleet.

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