- Lemonade Launches FSD-Focused Car Insurance in Oregon and Arizona: Lemonade now offers a unique insurance product tailored for Tesla drivers with Full Self-Driving, providing about 50% discounts on miles driven with FSD engaged, connected directly via Tesla’s Fleet API.
- Innovative Pricing Based on FSD Software Version and Usage: The insurance system automatically differentiates between manual and FSD miles, applying discounts accordingly, and considers the specific FSD software version for dynamic rate adjustments as Tesla updates their software.
- Market Context: Insurance Premiums and Carrier Profits: While premiums increased sharply in 2023 and 2024, 2025 saw a slight decrease, with major insurers like Allstate reporting record profits, indicating the market has corrected from earlier overpricing.
- Insurance Rate Variations by State and Evolving EV Costs: Insurance costs vary significantly by state, with some experiencing double-digit increases, but the gap between EV and gas vehicle insurance costs is narrowing, especially for newer EV models, reducing financial barriers to electric vehicles.
- Impact of Tariffs and Market Competition on 2026 Rates: Tariffs could raise repair costs and insurance premiums further in 2026, but currently, increased shopping and competition among insurers are helping consumers find better rates, making it a good time to compare insurance options.
Lemonade car insurance launched its autonomous car insurance product in Oregon on February 10, making it the second state where Tesla owners can get roughly 50% off their per-mile insurance rate while driving with Full Self-Driving engaged. The insurtech rolled out the same product in Arizona in late January, and it represents one of the first insurance offerings built specifically around self-driving technology rather than the human behind the wheel.
The product works by connecting directly to a Tesla through the company’s Fleet API, with the driver’s permission. Once linked, Lemonade’s system distinguishes between miles driven manually and miles driven using FSD, then applies the discount automatically to qualifying FSD miles. There’s no minimum usage requirement. Drivers who only use FSD occasionally still get the reduced rate on those miles, while manual miles are billed at standard rates.
Lemonade co-founder Shai Wininger has framed the product as a direct challenge to traditional carriers that price Teslas like any other vehicle. The company also factors in the specific FSD software version installed, which means rates could adjust as Tesla pushes safer updates. Wininger has gone as far as saying the company wants to ensure FSD vehicles for “almost free” eventually. For now, the 50% per-mile discount significantly undercuts Tesla’s own insurance product, which caps its FSD discount at 10% and only applies it to certain coverages.
The timing is notable. The broader auto insurance market is entering 2026 in a very different place than it was two years ago. After premiums surged 46% from 2022 to 2024, the average annual cost of full-coverage insurance dropped 6% in 2025 to $2,144, according to Insurify’s analysis of more than 190 million quotes. The company projects a modest 1% increase in 2026, bringing the average to $2,158. That’s a far cry from the double-digit spikes drivers endured in 2023 and 2024.
Major carriers are now flush with cash from those elevated premiums. Allstate reported Q4 2025 net income of $3.8 billion, double the prior year, and its auto underwriting income tripled. The company’s SAVE program reduced premiums for 7.8 million customers by an average of 17%, and its newer ASC product cut rates in 32 states. Allstate also announced an 8% dividend increase and a $4 billion share repurchase program. When one of the country’s biggest auto insurers is simultaneously posting record profits and cutting customer rates, it signals a market that has corrected from the overcorrections of 2023 and 2024.
Not every driver is feeling relief equally, though. Four states saw double-digit premium increases in 2025, with New Jersey rates climbing 20%. Washington, D.C., now has the highest average full-coverage cost in the country at $4,017 per year. New Jersey also raised its minimum coverage requirements for 2026, which could push prices higher. Tracking car insurance rates by state remains one of the best ways to understand whether your renewal is in line with what others are paying or if you’re getting squeezed.
The EV insurance gap is also narrowing outside of Lemonade’s product. ValuePenguin’s 2026 report found that the top nine EVs cost an average of $309 per month to insure with full coverage, about 18% more than gas-powered equivalents. That’s down from a 23% gap in 2025. Legacy automaker EVs like the Ford F-150 Lightning and Chevrolet Equinox EV are particularly close to their gas counterparts in insurance cost, which removes one of the lingering financial objections to going electric.
One wildcard hangs over the market: tariffs. A 10% universal tariff has been in place since April 2025, with steeper 25% tariffs on imported vehicles, auto parts, steel, and aluminum. Insurify notes that the full effects haven’t hit repair costs yet, and insurers haven’t passed them on to consumers. If that changes, Insurify projects an additional 3 percentage points of rate increases nationally, pushing the 2026 forecast from 1% to 4%. Collision repair shops are already reporting out-of-pocket cost increases of 40% to 50% for parts and labor not approved by adjusters.
For drivers renewing policies in 2026, the competitive landscape is working in their favor for the first time in years. J.D. Power found that a record 57% of customers shopped for auto insurance in 2025, up from 49% the year before. That shopping pressure is forcing carriers to compete on price again. Whether you drive a Tesla with FSD or a ten-year-old sedan, comparing the best car insurance options at renewal could save you hundreds, especially if your current carrier was one of the ones that overshot on rate increases during the inflation spike.
Lemonade’s Oregon expansion is just the beginning. The company has said more states are coming, and it’s building infrastructure to eventually support autonomous vehicles from Ford, GM, and other manufacturers as their self-driving tech matures. Whether traditional insurers respond with their own FSD products or continue treating every car the same, this is the first real test of whether autonomous driving data can reshape how Americans pay for coverage. The answer to that question will matter a lot more than any quarterly earnings report.
