pros-cons-of-auto-manufacturers-providing-their-own-insurance

One thing that the US isn't short of are auto insurers. According to the statistics by IBIS World, it is a market worth 288 billion dollars. This is no surprise as Carsurance state that about 87pc of American motorists drive insured vehicles. Hence there are countless companies fighting for supremacy.

But they're getting a bunch of new challengers in the form of automakers. That's right, carmakers also want a slice of the auto insurance cake. They're going to be adding coverage to their very own manufactured vehicles. This means that they'll try to cut out the supposed middle man.

But how will this work out? Who'll benefit from it and who'll lose the most? The following piece gives you the pros and cons of auto manufacturers providing their own insurance:

The Background Behind Automakers Becoming Insurers

Like many automotive innovations in the past couple of years, people attribute this one to Tesla Motors. The world's most valuable auto manufacturer has given us a bunch of high-tech vehicles. They've changed the way vehicles work not only by making them electric.

But they've also brought us self-driving cars that accelerate like supercars; all for a reasonable price. Tesla believes in providing the most value to its consumers. They announced in April 2019; wanting to revolutionise the concept of auto insurance. However, Toyota considered this idea back in 2016.

Regardless, Elon Musk's company announced that they'll be insuring their own vehicles. They'd do this at a discounted rate to benefit the customers. Meanwhile, they'd get to tap into this multi-billion-dollar industry. For instance, if you will need Tesla Model 3 insurance, Tesla themselves will provide it.

Porsche then followed suit soon after and their plan is also available in some US states. Mercedes-Benz also liked the idea and hence they joined forces with the insurance firm Liberty Mutual. Similarly, US automakers like Ford and GM have taken a similar route, partnering up with established insurers.

The Pros and Cons of Auto Manufacturers Providing Their Own Insurance

As more car manufacturers will enter the insurance industry, its landscape is bound to change. But like anything else, there are advantages and disadvantages of the concept. Completely trying to change a decades' old concept will have an impact.

The following section gives you an idea of what could transpire:

The Pros – Advantages of Automakers Insuring Their Own Vehicles

Car purchases will be easier

Purchasing your vehicle will definitely become quicker. Nowadays, you've got to search around the web for the best deals for your new vehicle. But when the company themselves will provide insurance, you won't have to look around. The insurance will just come included with the purchase, if you choose it.

Rates for users will be lower

Of course, this is the selling point of the whole idea. When Tesla announced their new plan, they predicted that the price of premiums will decrease by 20 to 30pc. Similarly, Merc users will save around 500 dollars from the aforementioned scheme.

The context for this is that car manufacturers can afford to give out cheaper insurance. Firstly, insurance companies have to pay huge amounts in commissions and salaries plus rents and advertisements. Then, insurance companies also don't have the data collecting accuracy that automakers do.

Insurance process will become more accurate

This is simply due to better telematics. Your regular insurer may gather your data via a standard app or some plug-in gadget. But an automaker will be able to take note of the car's data via its very own sensors and cameras. This will make the process quicker and more precise, preventing fraud.

Luxury car insurance will be cheaper

We've established that with the usage of more telematics, there will be more accuracy in the data. This benefits a luxury car driver because if they don't use their vehicle for more than a joyride. Less mileage means that they'll be charged in a more relaxing manner. This could boost the sales of high-end cars.

The Cons – Disadvantages of Automakers Insuring Their Own Vehicles

People will lose jobs

Removing the middleman usually benefits two of the original three parties. As mentioned above, insurance companies are already at each other's throats. The market is already fiercely competitive and with the large automakers taking up the insurance duties, it will become even more so.

Of course, the auto manufacturers will hire the experts from the insurance field. Even now, the initial steps taken by major companies involve partnerships with established insurance firms. However, the small-time insurance firms will have to suffer.

Older vehicles will be difficult to insure

OBD data and telematics are one of the reasons why auto manufacturers are considering the insurance industry. But what about old vehicles that don't have the built-in technologies that newer cars have? Their metrics will be difficult to track and so that will be an obstacle.

Implementation will take time

Picking up the rights to insuring their own cars is complex. Right now, only three manufacturers are implementing this concept. But even their implementations come with asterisks. They're either limited to only a few states. Or they haven't brought the economic relaxation that they promised.

Remember, while the idea of automakers taking up insurance may seem attractive. Not all automakers have proposed it. Many who have still haven't considered implementing it. Changing the entire landscape of auto insurance will take time. Right now, it just encompasses a few states in the US.

Conclusion

Auto manufacturers providing their own insurance seems like a swell idea. It will be cheaper for the motorists and the carmakers will make a lot of money off it. This is an idea that can revolutionise an old system and remove the fraud from it.

However, it will adversely affect insurance companies and hence the millions employed in them. As it involves replacing an old system, its implementation will definitely take time. Automakers will have to adapt to its complexity and figure out a way that is suitable for everybody.