Tesla's massive recall, from the perspective of a claims professional

Insurance experts predict this is a sign of things to come as cars become more tech-laden.

“Software and new tech system issues are a key concern for the entire automotive sector,” John Turner of McLarens said. “As with all innovations, there are lessons to learn and much R&D to do before products hit the streets, but even then, the streets provide the real acid test.” Credit: National Transportation Safety Board

Tesla Motors, Inc. is recalling more than 2 million cars due to its Autosteer feature, which “may not be sufficient to prevent driver misuse of the SAE Level 2 advanced driver-assistance feature,” according to a letter from the National Highway Traffic Safety Administration (NHTSA). Only vehicles in the U.S. and Canada are affected by the recall.

According to NHTSA, there is an increased risk of a crash when Autosteer is used and the driver fails to maintain responsibility for the car’s operation. The administration also noted instances where Autosteer was engaged and drivers were unprepared to intervene or did not realize when the feature was turned off.

From 2012-2022, Tesla has sold around 3.61 million units worldwide. Credit: Statista

Vehicles impacted by the recall include:

The company reported it will remedy the Autosteer issue with over-the-air (OTA) software updates. Telsa said the updates started rolling out to some models on Dec. 12, 2023.

According to a release from senators Ed Markey (D-Mass.) and Richard Blumenthal (D-Conn.), the NHTSA is investigating nearly 1,000 crashes involving the use of Autosteer. The senators have been calling for more oversight to ensure the safety of advanced driver assistance systems (ADAS).

“This recall is critically needed to make Tesla’s cars safer, but it is egregiously overdue,” a joint statement from the senators said. “We have long sounded alarms about Tesla exaggerating the true capabilities of Autopilot and other flawed features. We urge NHTSA to continue its investigations to spur necessary recalls, and Tesla to stop misleading drivers and putting the public in great danger.”

According to John Turner, global director of crisis management for claims services provider McLarens, this recall will showcase how the NHTSA will look to regulate ADAS  in the future.

Sign of things to come

More recalls of this nature can be expected as automakers lean further into new technologies when designing new vehicles, Turner said.

“Software and new tech system issues are a key concern for the entire automotive sector,” Turner said. “As with all innovations, there are lessons to learn and much R&D to do before products hit the streets, but even then, the streets provide the real acid test.”

While Tesla will be able to mend this problem with an OTA update, Turner noted the recall will not be cheap.

“Even an OTA-related software update remedy will be costly when covering two million vehicles, and for the culpable component or software supplier, if one is partly or wholly to blame, they will likely be under pressure from Tesla to provide reimbursement,” Turner said.

Although Tesla’s recall will be one of the largest to leverage an OTA fix, it certainly won’t be the last. However, even when a faulty component can accept OTA updates, that doesn’t mean an automaker necessarily can or will turn to them.

“McLarens is seeing instances where OEMs (original equipment manufacturers), for various reasons, are not able to deploy an OTA solution,” Turner said. “This can cause commercial tension where the OEM asks the supplier to foot the bill for the corresponding increased costs of a dealership-based repair solution.”

He explained that specialty policies could provide financial loss and recall liability coverages for component suppliers’ liabilities to OEMs for cases when a defective product is the cause of a recall event. These extensions respond to pure economic loss claims sought from the component supplier.

“The economic costs of a recall typically involve repair costs and related extra expenses,” Turner said. “However, they do on occasion involve brand damage and corresponding loss of margin from loss of sales which OEMs can attribute to a recall event.”

Insurance can offer component suppliers protection from these claims, but such coverages are not typically included in standard policies and it is vital for component suppliers to have specialty coverage to address their supply chain liability exposures to OEMs’ economic losses, he said.

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