Lemonade, a digital insurance company based in New York, is shaking up how car insurance is priced by charging customers based on whether a human or Tesla’s Full Self-Driving (FSD) system is behind the wheel. Starting later this month in Arizona, and then in Oregon in February, Tesla owners using FSD can see their pay-per-mile insurance rates cut by as much as half.
This new insurance, called “Autonomous Car Insurance,” relies on data directly from Tesla vehicles. Tesla has agreed to share information that lets Lemonade tell when the car is being driven by a person and when the FSD software is in control. According to Shai Wininger, Lemonade’s co-founder, cars using FSD are involved in fewer accidents, allowing the company to offer more accurate, and often lower, premiums.
For the insurance industry, this is a fresh way of looking at risk. Usually, insurers base rates on the type of car or the driver’s history. Now, the focus is shifting to the software driving the car. Lemonade believes that even though Tesla’s system still needs a human to watch over it, the technology is safer than traditional driving. This move also makes Lemonade one of the first insurers to put a real value on self-driving technology in rates.
Other insurers have been more cautious. Many still treat Teslas like any other luxury vehicle since getting consistent data on driver-assist features is hard, and regulations are still unclear. But Lemonade’s plan is all about one brand and one tech system, which gives it a data edge. Wininger points out that FSD is not just another driver—it’s a computer that sees all around, never gets tired, and reacts quickly.
There are still questions about Tesla’s system, which mainly uses cameras and AI, rather than more complex sensor arrays some competitors use. Critics say this could make it less reliable in bad weather or tricky driving situations. Insurers worry about how software updates change risk and how fast improvements will appear in accident numbers.
Lemonade says they will keep adjusting their prices as Tesla improves the FSD software. This means the pricing will be more flexible than traditional actuarial methods, which rely on long-term past data.
This new approach also raises bigger questions for the insurance world. As cars get smarter, insurers must decide if self-driving features are just another part of the car, a type of driver, or a completely new kind of risk to handle. Some might want to team up with carmakers for better data access, while others could push regulators to hold manufacturers more responsible for crashes.
Tesla already offers its own insurance in some states, with discounts for safer driving and FSD use. Lemonade entering this space could spark competition not just between insurers, but also between insurers and carmakers, over who controls how autonomous driving risks are priced.
Though this rollout is small for now, the idea is bold. If Lemonade’s model holds up, big insurance companies might have to explain why two identical cars get very different rates, depending on whether a human or a machine is driving. On the other hand, if losses rise, people could become more doubtful about insuring partially automated driving before regulators figure out who is to blame when things go wrong.
In the end, this experiment could change how insurance works in a world full of software-driven cars. But the real test will be simple: the claims data. That’s what the industry trusts most.