Subrato Bhattacharya, Senior Consultant, TCS BaNCS

Digital technology and hyper-connected customers are changing the fundamentals of businesses across the board. This is forcing a rethink of how business is conducted, the emergence of new business models, how to re-center around customers and how contextual financial products are manufactured.

Automaker or Data Company?

From the very beginning, Tesla has prioritized the collection and utilization of all data from all their cars. This data is pushed to their servers for analysis. This enabled them to detect issues with their vehicles, often before the owners did, and to also make their vehicles better by pushing over the air updates. The vehicles got better as time went on. The company also uses big data analytics to gauge customer satisfaction and to improve the customer experience. It actively analyses text in its online forums to find demand trends and common complaints that it can cater to in future updates.

Tesla has collected over 6 billion miles of real-world driving data. Although it is selling more vehicles and energy solutions, it’s Tesla's unparalleled use of data that is the trigger for its spiraling valuations. Tesla's valuation is more than the combined valuation of the 7 Japanese automakers. It hit a trillion-dollar valuation recently, albeit briefly.

The Insurance Disruptor

One of its latest product innovations is Real-Time Insurance - Tesla Insurance. This is a classic case of the use of data and Embedded Finance in delivering a seamless customer experience.

For a long, insurance companies had challenges in pricing /computing premiums for a Tesla. The lack of historical data around the vehicle and traditional risk models which did not consider the peculiarities of Tesla vehicles were the constraints with the insurance companies. They quoted higher premiums to offset the unknowns.

Tesla, sitting on an ever-increasing pile of data, monetizes it and helps it deliver tailored solutions for the customers. They launched recently Tesla Insurance in Texas. Disruption at it is best. 

The product pricing or premiums are entirely based on analysis of the data collected from its cars. This is a classic case of leveraging data to build better risk models, lowering premiums, and being personalized to the context of the customer.

The Base Constructs

As with any Tesla product, the insurance product embodies the first principles of thinking. 

It does not use historical information to judge the vehicle owner or the driver. It uses data of the current situation, preferences, and current actions which are monitored daily, and then determines the premiums. 

While subscribing, Tesla does not even require the usual personal details (age, marital status, gender, etc.) or the customer's past historical records/data points. It relies on the current driving skills. How one handles the car is relevant, not who (human) is handling the car. The customer only has to specify the model of the vehicle, place of residence, average mileage, and any add-on options to start the program.

With a Tesla, every interaction with the vehicle (wheel turn, hitting the brakes) generates a data point. Using these data points, Tesla generates a Safety Score. Seeded with an average value (with a base of all drivers/models/location, etc.), the Safety Score is re-computed each month thanks to the integrated sensors and the data that is collected.

Tesla captures driving data points on overall trips, where a trip comprises any driving (including reversing and Autopilot usage) occurring between the time the vehicle is powered on and able to be driven to the time the vehicle is powered off. Some data points refer to the forced “autopilot” disengagements (triggered by continuous inattention), hard braking and aggressive turns, number of forwarding collision warnings, and cases of insufficient safety distance while following a vehicle ahead - Unsafe Following. 

Crystal Ball Gazing

There are competing insurance products that require devices to be set up within the vehicle. Tesla scores way ahead of its competitors in delivering a superior experience for its customers. The data collection is perfectly inbuilt into the machine and it requires no additional accessory to take advantage of the contextual insurance. 

This is just one of the use cases of data, where a new line of business has spawned out and is likely to disrupt the traditional insurance space. 

This connected-cars data collection technique is Tesla's crowd-sourced AI/ML training and might lead to the development and deployment of autonomous vehicles. This can lead to further improvement in Advanced Driver Assistance Systems. 

Tesla Insurance also embodies aspects of Embedded Finance - Embedded Insurance at the Point of Need. With this embedded insurance, customer experience is seamless and convenient.

Innovative products have always had tough times with insurance, but with the data in the kitty, the future insurers will be our partners in all our journeys– on Earth, Mars, and beyond.

Disclaimer: Views or opinions represented in this blog are based on the author’s own research and do not represent TCS BaNCS.


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