Lemonade launches Tesla FSD insurance with 50% discount – bigger than Tesla’s own

Lemonade has launched what it calls “Autonomous Car Insurance”, a first-of-its-kind product that slashes rates by approximately 50% for Tesla owners when Full Self-Driving is engaged. It’s a bold bet on FSD technology, and it significantly undercuts the discount offered by Tesla’s own insurance product.

It again shows the difference between what Tesla claims and delivers regarding autonomous and assisted driving.

The digital insurer announced the new product this week, and it’s the result of a technical collaboration with Tesla that gives Lemonade access to vehicle telemetry data that was previously unavailable to third-party insurers.

Here’s what Lemonade co-founder and president Shai Wininger had to say about the move:

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“Traditional insurers treat a Tesla like any other car, and AI like any other driver. But a car that sees 360 degrees, never gets drowsy, and reacts in milliseconds can’t be compared to a human.”

I have to say, that’s quite a statement. And he’s putting his money where his mouth is.

How it works

Lemonade’s new offering works on a pay-per-mile basis, and here’s the key: the discount only applies when FSD is actually engaged. The company says it can now distinguish between human-driven miles and FSD-driven miles thanks to its direct connection to Tesla’s onboard computer.

Wininger told Reuters that Lemonade is looking at driving data “in extremely high resolution, where we see every minute, every second that you drive your car.”

The company also says it factors in the specific FSD software version installed in your Tesla and the sensor precision of your vehicle. This is interesting because it suggests Lemonade could offer different rates as Tesla releases newer, potentially safer FSD versions.

And speaking of future updates, Lemonade made this commitment:

“Beyond the product announcement today, we’re also announcing our commitment to the Tesla community – the safer FSD software becomes, the more our prices will drop.”

That’s a pretty significant promise, and it aligns with the company’s claim that it wants to insure FSD vehicles for “almost free” eventually.

How does it compare to Tesla Insurance?

This is where things get interesting. Tesla launched its own FSD discount for Tesla Insurance customers about a year ago, and the difference is stark.

Here’s a comparison:

The difference is quite significant. Tesla offers a maximum 10% discount when you drive with FSD engaged at least 50% of the time, and that discount only applies to certain coverages – not your total premium. So your actual savings could be less than 10% overall.

Lemonade, on the other hand, is offering roughly 50% off your per-mile rate for every mile driven with FSD engaged. That’s a 5x bigger discount.

Tesla’s broader insurance approach

It’s worth noting that Tesla Insurance takes a different approach overall. The company uses its Safety Score system to evaluate driving behavior, looking at factors like hard braking, aggressive turning, unsafe following distance, and late-night driving. Your monthly premium can fluctuate based on a 30-day rolling average of your Safety Score, weighted by miles driven.

Tesla says “average” drivers should save 20% to 40% compared to competitors, while those with the safest scores could save 30% to 60%.

The FSD discount is essentially layered on top of this. Tesla’s support page explains:

“The more you drive with FSD (Supervised) enabled, the bigger the discount is on your insurance premium for certain coverages on your Tesla Insurance policy.”

But here’s the thing, Tesla’s Safety Score is weighted by miles driven while Autopilot or FSD is disengaged. So ironically, if you’re using FSD a lot, your Safety Score may not be as heavily weighted because you’re not driving manually as much.

The elephant in the room

Now, I have to address something important here. Both companies are betting that FSD makes driving safer, but the data supporting this claim remains controversial.

Tesla released its own FSD safety report late last year claiming the system results in fewer crashes. But as some autonomous vehicle experts have pointed out, that data hasn’t been peer-reviewed and may be misleading. The U.S. auto safety regulator (NHTSA) has investigated multiple crashes involving Tesla’s FSD and is examining claims that vehicles using the technology have committed traffic violations.

Wininger acknowledged this reality:

“These things are not fully autonomous yet and they require a certain intervention level, a skill level from the driver. So 50% off, based on the data that we have, is what we believe the improvement is of you as a driver using this technology, but not that technology driving by itself.”

That’s an important distinction. Lemonade is betting that FSD makes you a safer driver, not that FSD can drive safely on its own.

Electrek’s take

This is a genuinely interesting development in the insurance industry. Traditional insurers have been treating Teslas like any other car, sometimes worse, actually, given the at times high repair costs, and haven’t known how to price the emerging autonomous features.

The 50% discount is aggressive. It’s really telling that it is higher than Tesla’s when Tesla claims that FSD is “9-10 times safer than human drivers.”

If you really believe that, why not reflect it in your insurance product?

And as always, it’s important to specify that it’s unfair to say “FSD is safer than human drivers”. It should be “FSD, under human driver supervision, is safer than just a human driver.” It’s an important distinction.