Tesla Just Made a Huge Announcement That May Completely Change the Auto Industry. Here's Why It's Brilliant - Inc.

A few months ago, Tesla CEO Elon Musk teased a plan to offer customers car insurance provided directly by Tesla, as opposed to a third-party insurance company. It's a plan Tesla has been working on for years.

Last week, Tesla announced that this plan was now reality.

"Starting today, we're launching Tesla Insurance, a competitively priced insurance offering designed to provide Tesla owners with up to 20 percent lower rates, and in some cases as much as 30 percent," Tesla announced on its website last week. According to the statement, Tesla Insurance offers comprehensive coverage and claims management to customers in California, with planned expansion to additional U.S. states in the future.

The insurance problem is one Musk has been itching to solve for some time. Tesla vehicles are notoriously expensive to insure, despite the company's claims that its cars are the safest in the world.

Analysts claim the reasons Teslas are so expensive to repair has to do with the cars' aluminum construction, limited expertise on the part of mechanics and auto-body repair experts, and cost of replacement parts. (According to at least one Tesla owner, a simple fender bender could cost up to five figures to repair.)

So, how can Tesla address those problems? After all, in response to Tesla's plans, Warren Buffett compared the probability of auto companies successfully getting into the insurance business to that of insurance companies getting into the auto business.

Here's why he's wrong.

How Tesla insurance can change the game

In an effort to explain how Tesla insurance can reduce costs, the company said the following on its website:

Tesla uniquely understands its vehicles, technology, safety and repair costs, and eliminates fees taken by traditional insurance carriers. By pricing policies to reflect Tesla's active safety and advanced driver assistance features, which come standard on all new Tesla vehicles, Tesla Insurance is able to offer reduced insurance costs for many eligible owners.

This all has great potential. But even more interesting is what Tesla says it won't do:

"Tesla Insurance does not use nor record vehicle data, such as GPS or vehicle camera footage, when pricing insurance," states the company.

Hmm. So that's what Tesla's saying--for now.

But here's the rub: Tesla already has tons of data. And they could use it to price insurance, if not now, then in the future.

For example, a recent report in Axios outlined just some of the data Tesla collects on its vehicles, beyond the typical information most automakers gather.

In addition to vehicle location and personal settings, Tesla also:

• knows how fast you drive, and how long you drive at a time;
• monitors airbag deployments, braking, and acceleration; and 
• knows when Autopilot (Tesla's assisted-driving feature) is engaged or disengaged, and whether or not you have your hands on the wheel.

Axios also reported that "Teslas are constantly in record mode, using cameras and other sensors to log every detail about what they encounter while driving, even when Autopilot is turned off." These recordings even include short video clips from external cameras.

Now, imagine how all of this information could help make auto insurance prices more accurately reflect driver behavior. It could track everything, from bad habits, to near misses, to the type of risks every driver is willing to take--or not take.

Even if Tesla held fast with their decision not to use this data in connection with its insurance offering--and they'd be crazy to do that--what's to prevent other automakers from doing this down the road?

Of course, I completely understand why Tesla doesn't yet indicate it will use this treasure trove of data. Just because the technology is there, doesn't mean people are ready for it. 

Instead, all indications are that Tesla's plan is quite brilliant.

For example, according to Tesla's website, the insurance policy is directly linked to a customer's "Tesla account." To report or track a claim, they simply call the number on their insurance card, after which a Tesla specialist "will support you through your entire claims experience." The Tesla rep can also provide access to approved Tesla Body Repair Centers.

Through all of this, the company gets to leverage a major strength, one of (some) Tesla owners' favorite things about the company:

Its customer service.

Of course, if Tesla can prove that it can provide great customer service on the insurance side, it will gain consumer trust and loyalty. And once that trust is established, it opens the door for the company to begin using all that collected data--without major pushback from consumers.

To be clear, I'm not arguing that this idea will succeed. After all, the future of the company itself is constantly in flux.

But Tesla's insurance venture will provide a real-world case study. And it will pave the way for other automakers to follow suit--or, to learn from Tesla's mistakes--just as they've done with electric cars.

In the end, that just may be Tesla's, and Musk's, legacy: 

Not only showing us that a better way is possible, but also inspiring others to take it.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.