Sunday, June 4, 2017

Why does it cost more to insure a Tesla?

The AAA is raising rates to insure Tesla's, and Tesla is angry:
The rear-wheel-drive Tesla Model S is involved in 46 percent more claims than average, and those claims cost more than twice the average, it said.

it wasn't clear whether this was due to Adverse Selection (people who buy Tesla's are worse drivers, or more prone to file claims, and the Tesla is expensive to repair) or Moral Hazard (those who buy Tesla's drive more recklessly after they buy).

Remember Adverse selection is caused by hidden information about a person's type, moral hazard is caused hidden information about actions.

1 comment:

  1. Hello,

    I've just begun taking Managerial Economics at Washington State University. I'll attempt a novice assessment and say that Tesla would be angry because this action is likely to reduce demand (at least a little) and may discourage future buyers. Especially at a time where Tesla is introducing the more affordable Model 3 to a new market segment.