When Tesla Inc. (NASDAQ: TSLA) reported second-quarter results in July, CEO Elon Musk noted that the automaker was building “a major insurance company.” On Wednesday, General Motors Co. (NYSE: GM) said that “over the next few years,” it too would build a new insurance company based on its OnStar in-vehicle data service.
Tesla launched its Tesla Insurance program in California last year, but problems during the rollout led to a less-than-successful launch. Musk has said he would like to roll Tesla Insurance out in a few other states by the end of this year.
For its part, GM’s OnStar system was launched in 1997 on several Cadillac models. The system initially offered emergency service calls and navigation help. As it has developed, OnStar now has the capability to gather data from an onboard diagnostics system and includes GPS functions through a cellular connection. As is the case with Tesla, using the data the cars’ systems already collect to create another revenue stream makes sense.
In addition to its existing emergency assistance services, GM’s OnStar Insurance Services business plans to enlist insurance company partners to offer “insurance that takes biased judgement out of insurance shopping by focusing on factors within the customer’s control: individual vehicle usage and rewarding smart driving habits that benefit road safety.”
GM also noted that it “plans to build on the learnings of the OnStar Smart Driver feature to provide proactive recommendations for smarter driving habits so customers can drive more safely and potentially earn discounts.”
GM plans to roll out OnStar Insurance in the current quarter to GM employees in Arizona before launching the program nationwide early next year. OnStar also plans to offer homeowner’s insurance through its partner network.
It is hard to see how this could be a big moneymaker for either GM or Tesla, despite Musk’s claim that Tesla is building a “major insurance company.” Analysts at Loup Ventures have commented on Tesla’s insurance business: “[I]n the long run, we see the insurance segment representing a measurable, but not a material part of the business.”
GM shares rose by about 1.8% on Wednesday and traded up another 0.2% early Thursday at $42.81, in a 52-week range of $14.33 to $44.13. The high was posted Wednesday, and the consensus price target on the stock is $46.29.