Tesla is in hot water for mishandling insurance claims

California is taking significant enforcement action against Tesla Insurance, alleging the company has been systematically failing to handle claims properly and harming its customers in the state. The California Department of Insurance announced the action, threatening to revoke Tesla’s license to operate in the state and impose significant fines.

This isn’t the first time we’ve seen Tesla’s insurance arm in hot water, but this action from a major market like California represents a serious escalation.

According to the press release, the California Department of Insurance has issued “Accusations” and “Notices of Orders to Show Cause” against Tesla Insurance Services, Inc., Tesla Insurance Company, and their partner, State National Insurance Company. The Department alleges that these companies have repeatedly failed to comply with California’s claims handling laws, leading to significant harm for policyholders – most of whom are Tesla drivers.

The Department of Insurance laid out some of the core allegations:

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• Egregious delays in responding to policyholder claims in all steps of the claims handling process, causing financial harm, out-of-pocket expenses, potential third-party liability exposure, and distress to policyholders.
• Unreasonable denials and delays in fully paying valid claims to consumers. Failure to conduct thorough, fair, and objective investigations of claims, thus denying consumers the insurance benefits they expect.
• Failure to advise policyholders of their rights to have their claims denials reviewed by the Department – a major consumer protection in California to make sure insurers are held accountable by their regulator.

The state claims that despite numerous warnings and meetings where Tesla and its partners promised to improve, “the number of justified consumer complaints and violations continued to mount.”

The companies now face potential penalties of up to $5,000 for each unlawful, unfair, or deceptive act, or up to $10,000 for each act determined to be willful. Given the Department alleges “hundreds” of mishandled claims, the fines could quickly add up into the millions.

The companies have 15 days to respond to the allegations. If the issues are not resolved, the case will go before an administrative law judge to determine if Tesla can continue to sell insurance in California.

Electrek’s Take

That does sound like Tesla, especially the part where they are ignoring the notices.

This might be more important than it sounds, as insurance is critical to Tesla’s future, particularly if it is to be an autonomous one.

Tesla first started its insurance arm to lower cost to customers and “better account for how its autonomous driver assistance features improve safety.”

However, ultimately, Tesla drivers would find it hard to insure vehicles with level 3-5 autonomous driving technology, and Tesla planned to offer those services whenever it actually achieves these levels of autonomy.

Based on these statements by the California Department of Insurance, it doesn’t sound like Tesla is ready to take on that responsibility.