There’s plenty of interesting stuff “hidden” in Tesla’s Q3 2021 earnings call, including the fact that the company has reached an annualized production rate of over 1 million EVs by the end of the quarter.

That’s a remarkable achievement, but the call touched on many other topics. One of them was Tesla Insurance, the company’s in-house insurance service currently offered in California and more recently introduced to Texas.

As you probably know, the insurance product is enabled by the Safety Score Beta, the feature Tesla has introduced to measure how safe a driver's behavior is behind the wheel. Kirkhorn noted that about 150,000 cars are currently using it as a pre-condition of accessing the Full Self-Driving Beta program.

More importantly, it’s working great so far: Tesla has calculated that customers using the Safety Score are 30% less likely to be involved in a collision. That alone justifies its introduction independent of its role in Tesla Insurance.

Asked during the call how Tesla will distribute the insurance service and what’s the expansion plan, the company’s chief financial officer Zach Kirkhorn did not provide many technical details. While he said he’s “extremely passionate about our insurance product,” he added that it wasn’t something Tesla planned, but rather a reaction to an anomaly in the market.

“We entered the insurance market kind of unintentionally. Our customers were coming to us complaining that the price of traditional insurance was too high and it was reducing the affordability of a Tesla… And if you look at the price of insurance as a percentage of what somebody’s monthly payment is, it’s quite high.” 

Tesla’s CFO then noted that traditional insurance typically utilizes limited data, causing some insurance rates for Teslas to be quite unfair.

“What essentially happens here is customers who are low risk and don’t actually file many claims end up overpaying on their insurance relative to their cost. That overpayment then goes to riskier customers essentially being subsidized.”

Tesla Insurance aims to change this unfair situation by using only relevant, individual data to determine the cost of insurance. Since Tesla EVs are connected—they're “essentially computers on wheels”—the Safety Score system is a good tool to assess the attributes of an individual driver who’s operating a car and whether those attributes are correlated with safety.

Basically, Tesla uses the enormous amount of real-time driving data from its cars to create a model that is able to predict the frequency of collision and therefore determine the appropriate insurance rate for each driver.

You can listen to Tesla's Q3 2021 earnings call in full below (audio only).

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