With the arrival of electric vehicles (EVs) onto the automobile scene, there are exciting possibilities and plenty of challenges. One of those challenges lies within the realm of the insurance industry: specifically, the area of yet unknown risk. While governments and universities are gathering data and making predictions about risk and premium costs, we don’t yet have enough consumer data to make accurate assessments. Here are some things to know as we move forward with new technology in the auto insurance industry.
Some Current Stats on Electric Vehicles
Let’s begin with a few statistics on where we currently stand in the EV industry. According to respected vehicle valuation and automotive research company Kelley Blue Book, electric vehicles made up 5.8% of new car sales in the United States in 2022 versus 3.2% in 2021. When you consider that 14 million new vehicles are sold each year in the U.S., that means there were over 80,000 electric cars sold in 2022, and that number will continue to rise.
In the first quarter of 2023, battery-operated electric vehicle (BEV) sales increased by 24% in all 19 analyzed markets, according to PricewaterhouseCoopers’ (PwC’s) Strategy& website. China represented the most significant market share (62%) of BEV sales in the combined markets analyzed. PwC predicts that starting in 2024, one-third of all commercially registered cars will likely be electric vehicles.
The reason given for the increased interest in EVs is the individual consumer’s desire to do their part in reducing carbon emissions and saving money on monthly fuel costs. The question yet to be answered is whether increased depreciation and insurance costs will offset the fuel savings.
EVs Are Considered More Difficult to Insure
The state of New York put out a consumer guide to shopping for auto insurance, including a list of “difficult-to-insure vehicles” from the last decade. The list includes models that insurers have been hesitant to insure or that they have strict conditions for insuring. While some models are on the list due to a high risk of theft or limited availability of replacement parts, many are there simply because they are electric. Why are EVs more expensive or difficult to insure? We’ll cover that next.
Auto Insurance and EVs: What You Should Know
Even though many experts put EVs into the category of difficult-to-insure vehicles, it doesn’t mean they are uninsurable. Here are a few things to know as you look at providing insurance for this new technology:
EVs May Be Less Resilient After A Crash
According to an April 2023 article in Consumer Reports, because of differences in both structure and technology, EVs may not withstand an accident as well as traditional gas-powered vehicles. Because of the battery component, the intense impact of a crash can be much more devastating to electric vehicles, increasing the likelihood of a totaled versus repairable car.
EV car batteries are vulnerable to damage, and if there’s any indication of compromise, insurance companies are most likely to pronounce an EV crash as a total loss. That’s because EV batteries are extremely expensive — up to half the cost of the entire car. If a battery is salvageable after a crash, required safety protocols for EV batteries add to the repair costs. While EVs tend to have fewer moving parts compared to traditional vehicles, those parts are often more expensive to replace.
As a result, insurance premiums will need to reflect this vulnerability and risk — at least, until car manufacturers find a better way to insulate the EV batteries from the force of impact.
EVs Have Certain Benefits For Insurance
EVs do have a couple of notable benefits when it comes to insurance assessment; namely added safety features and data collection capabilities. Telematic technology in EVs can help monitor driving habits, including speeding, acceleration, how often a driver slams the brakes, daytime vs. nighttime driving tendencies, and mileage.
According to Kelley Blue Book, some added safety features of many EVs include the following:
- Adaptive cruise control to follow the speed of the surrounding traffic.
- Blind-spot monitoring.
- Forward collision warning with emergency braking to avoid potential rear-ending crashes.
- Lane-departure warning to alert the driver they are crossing into another lane.
- Lane-keeping assist as a backup for the lane-departure warning.
- Lane-centering assist technology to help keep the car in the center of the lane.
- Rear automatic emergency braking to help the driver avoid backing into an object behind them.
- 360-degree surround camera system to help with safe parking.
- Automatic, high-beam technology to help the driver remember when to use their brights.
These features can all be supportive in helping the driver avoid crashes and damage to the car, ultimately lowering the risk to the insurer and keeping premium costs lower.
The Data Hasn’t Come In Yet
While there’s talk about EVs being difficult or more expensive to insure, the fact of the matter is that we don’t have enough data to predict fair premiums yet. Gas-powered cars now have a century of safety data — EVs are simply too new to know. Because we don’t have risk assessment data on EVs, we’re forced to build that uncertainty into premium costs.
The longer the EVs are on the market and on the road, the more information we’ll have on their safety, and the more accurate the premium costs will be.
In this new world of EVs, the Internet of Things (IoT), and the metaverse, there will continue to be new challenges as well as new opportunities. Premiums for EVs will likely remain higher than traditional gas-powered vehicles for a while until adequate data has been gathered to make accurate risk assessments going forward. However, the added telematics of EVs should be helpful in collecting that data, meaning that it may not take long to gather the needed information for fair and accurate pricing in the future.