The Challenges of Insuring Electric Vehicles

Monday, June 10th, 2024
Author: Andre Farrugia, PhD MSc FCII CFIRM

Newsletter Q3, 2024

The popularity of electric vehicles (EVs) continues to rise due to the increasing number of individuals embracing eco-friendly transportation options. Consequently there is a surge in the requirement for specialised insurance coverage for these vehicles. Insurers face distinct challenges when it comes to insuring electric vehicles, encompassing issues such as the elevated expenses associated with repairs and the intricacies involved in underwriting risks specific to EVs.

Repair and Replacement Costs
One of the main challenges insurers face when providing coverage for electric vehicles is the significantly higher repair and replacement costs compared to conventional vehicles. EVs incorporate expensive lithium-ion battery packs, advanced electronics, and specialised components, making repairs more intricate and costly. Moreover promising a replacement vehicle until the damaged vehicle is being repaired, is a challenge in itself, as there is no adequate replacement fleet (like with like) readily available. These higher costs directly impact insurance premiums, as insurers need to account for the increased expenses in the event of accidents or damage.

Lack of Standardisation in Repair Procedures
Unlike traditional petrol vehicles, electric vehicles have not yet established standardised repair procedures and protocols. This lack of uniformity can create challenges for insurers, as they must navigate a more complex landscape when assessing repair costs and establishing relationships with repair facilities. The absence of standardised repair practices in the EV market contributes to uncertainty in estimating repair times and costs, making it more difficult for insurers to accurately price their policies. This is set to even out but only when critical mass is reached.

Limited Availability of Qualified Technicians
Another issue insurers face when insuring electric vehicles is the limited availability of technicians with the expertise to survey, service and repair these advanced vehicles. This scarcity of expertise can lead to longer repair times and higher costs, further impacting the insurers’ ability to effectively underwrite and price EV insurance policies.

Evolving Technology and Risk Assessment
The rapid pace of technological advancements in the electric vehicle industry presents a challenge for insurers in assessing and managing associated risks. As EV technology continues to evolve, insurers must stay abreast of these developments and adapt their underwriting and risk assessment processes accordingly. This dynamic landscape requires insurers to continually update their knowledge base and risk models to accurately account for the unique characteristics of electric vehicles.

The expanding market for electric vehicles presents insurers with a range of complex challenges, from the high repair and replacement costs associated with EVs to the evolving technology and infrastructure considerations. We are currently somewhere within the learning curve and thus successfully addressing these issues requires insurers to continually adapt their approaches to underwriting, risk assessment, and claims management. By developing specialised expertise and enhancing collaboration with industry stakeholders, insurers can effectively meet the unique insurance needs of electric vehicle owners and contribute to the sustainable growth of the EV market.

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