When Jardine Matheson’s former Hong Kong executive Geoffrey Jones was shopping for a new car two years ago, a special package by Axa on Tesla’s four-door sedan caught his eye.
The French insurer offered three years of coverage in a special programme called InsureMyTesla, for HK$12,300 (US$1,569) in total, about a third of the nearest competitor’s price to insure all-electric vehicles, at a rate that’s even cheaper than policies for non-electric cars.
The HK$875,000 Model S also enjoyed a tax waiver, saving Jones another HK$625,000 on registration. Topping off the incentives, Tesla threw in an agreement to buy back the car after three years for HK$587,000.
The Model S, which boasts of going from standstill to 60 miles per hour (almost 100 kilometres per hour) in 2.5 seconds, “is a beautiful car, powerful and comfortable,” Jones said, adding that he was persuaded by the incentives package to trade his Mercedes-Benz E Class for the fully electric car, in solid black with grey leather interior.
Hong Kong has been one of the world’s fastest adopters of electric vehicles, as both government and owners eschewed internal combustion engines to help reduce tailpipe emission in the city’s urban landscape. Helped by a tax waiver on registrations from 1994 until March 2017, sales of electric cars surged in Hong Kong to 11,247 units at the end of August, from a mere 69 vehicles in April 2011, with Tesla claiming almost 90 per cent of that market share since entering the city in 2010.
Recognising the sales boom, insurers like Axa, Liberty Mutual Group and Target Insurance piled on to offer package deals to make electric cars more attractive. Paris-based Axa first tied up with Tesla in 2015.
Hong Kong has one of the lowest per capita ownership levels of private cars among Asian urban cities, with a little over half a million registered cars between 7 million residents, based on 2015 numbers, about half of Singapore’s average ownership, and a third of Taiwan’s.
That makes auto insurance the least profitable among every class of general insurance in Hong Kong, with the segment reporting HK$164.33 million in net loss in the first six months of this year, according to the Insurance Authority’s data.
On top of that, the Model S has the dubious honour of being the most expensive vehicle to insure, with the average annual insurance costing US$1,790, according to a 24/7 Wall St survey of 25 different makes and models sold in the United States.
So it wasn’t long before Axa changed its offer. Last month, the insurer notified Jones that his policy – due for expiry in August 2019 – would be terminated by December this year. The former executive had clocked up 994 kilometres (618 miles) in two years, with no accidents or claims on his policy.
Axa offered him a new policy at HK$12,300 per annum, effectively tripling his annual payment. On top of that, the insurer raised the policy’s excess – the top-up that the car owner needs to make to qualify for a compensation – to HK$130,000, from HK$8,000.
“If I had known that the insurance would become so expensive, I would not have bought my Tesla in 2016,” Jones said. “Now the annual premium is three times the cost and the vehicle excess is 20 times as much as a Mercedes E Class. This is ridiculous.”
Axa’s spokeswoman in Hong Kong said its termination of insurance policies for Tesla vehicles was “based on a commercial decision,” adding that the electric cars are expensive to insure, with the average windscreen claim at around HK$10,000, double the claim on other models.
“Tesla does not fix the car, but replaces all the damaged parts, with the components having to be imported from the US,” said Patrick Rozario, managing director of Moore Stephens Advisory Services in Hong Kong, who owns a six-seat Tesla Model X electric sports-utility vehicle, in midnight silver metallic. “Once, I scratched my car in the garage, and received a HK$170,000 quotation from the official body shop.”
For now, Axa is the only insurer to be raising its premium charges. The insurer would refund all the premium in October, and certify that its termination was due in no part to the behaviour of the car owners, Axa’s spokeswoman said.
“With regards to the change of the Tesla car insurance policy, we understand the inconvenience that may have caused to the customers and will do as much as we can to support the affected customers,” she said, declining to say how many customers would be affected.
Jones wasn’t the only Tesla owner caught by Axa’s policy change.
“I received a letter from Axa that my insurance will be cancelled,” said Rozario. “I will need to get new insurance and I have assumed that the insurance cost will go up.”
Like Jones, Rozario hadn’t been given a reason for the cancellation, although he assumed that it was because it’s costly to repair a Tesla vehicle. He had claimed his HK$170,000 paint job off his Axa policy, he said.
Hong Kong’s Insurance Authority has taken notice. The regulator has discussed with Axa, and has persuaded the insurer to give four additional months to allow customers to switch their coverage, according to a source close to the Insurance Authority.
The regulator “is concerned” about Axa’s motor insurance issue with Tesla, a spokeswoman said in response to the queries by the South China Morning Post.
“If an insurer does decide to terminate a policy prematurely, it should give full explanation and make every effort to provide alterative solutions so that the interests of policy holders will not be unduly affected,” the spokeswoman said. “The Insurance Authority considers it imperative for insurers to convey clearly the scope and terms of coverage to the insured during the sales process. It is the inherent responsibility for insurers to ensure that products are underwritten and priced prudently.”
Tesla, which teamed up with Axa globally in offering the insurance package, has now partnered with Liberty Mutual to offer a bridging policy to car owners who want to switch from Axa.
“We have also been disappointed about the recent situation where Tesla owners were let down by AXA Hong Kong,” a Tesla spokeswoman said.
Jones is one such customer. He refused to sign on with Axa’s new policy, but opted for Liberty Mutual’s package for the same increased annual payment. But at least the excess on his new policy would be kept at HK$8,000, he said.
Axa’s policy change has also helped Target, the second-largest motor insurer in Hong Kong, catch up, as a large number of Tesla car owners are migrating their policies over.
Target’s third-party insurance for Tesla and other electronic vehicle costs between HK$10,000 and HK$20,000 per annum, depending on the driver’s record and the model of the insured vehicle, double the price range on non-electric vehicles.
For comprehensive car insurance, the price for electronic vehicles ranges between HK$40,000 and HK$50,000 per year, compared with about HK$10,000 for gasoline-powered cars.
“The insurance risks are higher for electric cars such as Tesla,” said Target’s chairman Haywood Cheung. “The repair cost is much higher, as the carmaker does not just repair the parts but replace the whole thing, taking much longer time compared with the easier, quicker and cheaper repairs on conventional vehicles.”
Still, the changing insurance policy should not deter car owners who are technologically savvy or environmentally concerned from embracing zero-emission vehicles, said the Tesla spokeswoman.
“Insurance premiums are not a deterrent to buying electric vehicles,” she said. “In most markets that Tesla operates in, insuring electronic vehicles is comparable to insuring gasoline-powered cars. In some markets, insurance costs less for electric cars.”
As the carmaker reaches a scale that’s big enough to make components more readily available, it can offer faster and better repairs and customer service, “often at lower costs,” she said. “Over time, insurers will pass these savings on to customers, “ she said.
For now, Rozario remains committed to his electric car.
“I don’t think I will return to vehicles with internal combustion engines,” he said. “There is really no charging cost, and the vehicle license fee is much lower than gasoline-powered vehicles. The car performs well, and it’s also more environmental friendly.”
Jones, formerly of Jardine, wasn’t quite as contented. The experience has put him off electric vehicles entirely, he said.
“I have decided to give up my Tesla when the buy-back agreement allows me to sell the car back to the company next August,” he said. “I will go and buy a conventional, gasoline-powered car, which is easier to refill and have much more reasonable insurance cover.”