The Impact of EVs on Auto Insurance and Risk Management

Mitull Batraa Co-Founder and Chief Executive officer CEO Udaan E vehicles

With rapidly growing footprints, electric vehicles (EVs) are fast becoming a preferred choice of customers across the globe. Consequently, their wider adoption is resulting in critical implications for the auto industry. Especially for insurance and risk management professionals, the popularity of EVs warrants a comprehensive makeover of their existing policies. So, what are key areas of change and how do they need to be tackled, here are complete details:

a) Insurance Premiums: EVs are 50-60% costlier than their internal combustion engine (ICE) counterparts which has several implications for the insurance and risk management firms. As retail price is directly proportional to the insured declared value (IDV), the premium one has to pay for insuring EVs is comparatively higher. That said, IRDAI offers a 15% discount on premiums for insuring EVs which can help bring down the insurance costs for EVs and help to propage their appeal to a wider set of customers.

b) Specialised Nature: Besides retailing at higher prices, the specialised nature of EVs has crucial implications for risk management professionals. EVs although feature fewer components than ICE vehicles (up to 70% less), these parts are significantly costlier and scarce in supply.  The manufacturers of EV components are comparatively fewer and primarily located overseas, thereby exaggerating the parts and supply chain costs associated with EVs. All these implications need to be considered carefully by the insurance and risk management professionals to redraft their policies by taking into consideration all these industry dynamics in mind.

c) Maintenance Expenses: The ecosystem for EVs is still fledgling and yet to be established holistically. Take, for instance, the after-sales service network for EVs. In comparison to ICE vehicles boasting well-established service networks, the professionals, technicians, and repairmen in the EV field are significantly fewer. This leads to costly repairs with mechanics often milking their high demand to service EVs. Further, the diagnostic tools used for EVs are quite costly and can elevate the claim amount associated with EVs. All these factors warrant a complete rethink of the risk management and insurance strategies associated with the repair and maintenance of EVs.

d) Battery Issues: Almost 50% of total EV value is commanded by its battery, making it the most critical component of the electric mobility ecosystem. Typically EVs come with a substantial warranty on their battery (up to 8 years and 1,60,000 km) to reassure customers about their longevity and safety. That said, risk managers need to pay special attention to the degradation cycle, replacement costs, and safety-related risks associated with the battery. Insurers also need to carefully consider the battery specifications, its material, and the range it offers to underwrite the contract accurately.

e) Resale Challenges: To accurately assess EVs and their depreciation, insurers need to remain up to speed with industry trends, technological advancements, regulatory environment, and customer preferences. There is a pressing need to devise new depreciation models that accurately evaluate EV value even in the case of total loss declared on them. These models will help risk professionals in deciding the payouts against claims and create a win-win situation for industry stakeholders.

The EV revolution is sweeping through the world and by developing new premium plans, risk assessment models, and payout mechanisms, professionals can play an important role in helping the segment to grow in its appeal and popularity further. There is a need to take a comprehensive relook into the insurance and risk management strategies and by aligning these with the changing business realities and customer preferences, the dream of EVs’ adoption at a widespread level can be realised around the world.