Sales of Electric Vehicles have continued to increase throughout 2023 with the Tesla Model Y becoming the best-selling car globally, dethroning the long-time champ, the Toyota Corolla. In the UK alone the sales of pure electric vehicles have increased by 27.5%1 during 2023, now making up 16% of all new sales. Globally EVs now make up an estimated 18% of all new car sales and, although this rate of growth is likely to slow as governments push back the banning of new ICE vehicle sales, insurers are becoming worried about the impact of this change on the risk of their portfolios. Consequently, the price for insurance on EVs has increased by over 70% in the last year, significantly more than for ICE vehicles according to confused.com.
When electric vehicles first hit the market insurers were nervous about the risks associated with the changing technology.
- Would batteries catch fire?
- Would the vehicle get written off more easily?
- Would the existing repair networks be able to cope with the new technology?
- Would their silent nature and heavier weight result in more pedestrian accidents?
In addition to this, many of the newer vehicles have more expensive tech, significant torque and ludicrous 0-60 times (for a family car). But does any of this make them a higher risk?
In terms of the fire risk there is certainly the chance of a fire after damage to the battery pack, but ICE vehicles are powered by explosive liquids and also catch fire. According to a study by the Swedish Civil Contingencies Agency2 , petrol and diesel cars caught fire 19 times more often than EVs, and stats from Australia3 indicate that fires in ICE vehicles are nearly 100x more likely than in EV’s so it may not be the frequency but rather the severity that is concerning since lithium fires are extremely hard to control and extinguish leading to significantly more damage to surrounding property. That said, once a fire (of any sort) has started the vehicle will be likely written off so maybe insurers should be less concerned than the fire fighters?
There is no question though, that if the battery pack is damaged there is an increased risk and significantly higher storage costs as the vehicle should be kept ~15m from other property leading to it taking up around 100x the storage space of an ICE vehicle. This, coupled with the additional expensive technology deeply embedded in the car will likely lead to more vehicles written off.
Electric vehicles typically require less maintenance than their ICE equivalents, but they can exhibit increased tyre wear and require a more specialist approach when servicing work is required. There was certainly a shortage of suitably qualified workshops when EV’s were first introduced but by the end of 2022, according to the Institute of the Motor Industry, there were over 39,000 mechanics qualified to work on EVs in the UK alone and this was sufficient to fulfil the demands of the vehicles on the road so this is now becoming far less of a problem.
In the UK4 around 29% of the total cost of claims is for damage to the vehicle itself, 32% for injury to people and 25% for damage to other property so the increase in write-offs and the more costly repairs could be offset by safety features reducing the injuries to passengers and pedestrians as well as damage to other vehicles.
In fact, EV’s are now often safer than their ICE counterparts due to the additional weight being situated low down in the car and the consequent lowered centre of gravity. Whilst the greater weight increases tyre wear5 and kinetic energy on impact, the low centre of gravity coupled with the latest safety features and no engine in the front has helped EV’s be resistant to roll-overs and achieve some of the best safety ratings in the world.
The challenge is that the publicly available analysis into comparative insurance risk is not entirely consistent.
The ABI6 have stated that their analysis of UK motor claims shows that the average cost for an EV related claim is 25% higher than for an ICE claim and that they take 14% longer to repair. QBE7 also report directionally similar results quoting a 50% increase in repair costs and 10% increase in repair times compared to their ICE equivalents. Neither, though, quote any statistics on relative frequency of accidents.
In comparison, work carried out by HLDI8 showed that the higher severity of loss that used to exist pre 2016 was now reducing to almost parity and that the frequency of collision claims for an EV was consistently ~ 20% lower than for equivalent ICE model implying that overall they are a lower risk and could be cheaper to insure.
It should be noted however that pure EV brands such as Tesla and BYD were excluded from this analysis since there was no obvious ICE model counterpart.
A Norwegian study9 published in 2022 showed that EV’s whilst making up 7% of the car park only accounted for 3.1% of the crashes implying that their claims frequency is significantly lower than that of ICE vehicles. In addition they showed evidence that the severity of accidents was also 15% lower with only 12.5% of accidents involving serious injury or worse compared to 14.8% for ICE vehicles.
Lastly Munich Re have published a report10 that suggested that, after standardising for traditional rating variables, EVs were associated with a similar claim severity but higher claim frequency than ICE vehicles, with Pure VE’s being more risky than Plug-in Hybrids.
With no clear consensus in the traditional view of risk it is quite possible that the answer lies not so much with the car itself but how it is driven.
- Does range anxiety reduce aggressive driving or a different choice of route
- Does limited range lead to shorter trips and less fatigue?
- Do EV drivers choose different routes to maximise range?
- Does regenerative braking and one pedal driving affect the risk?
- Does one pedal driving affect low-speed and high-speed risk differently?
- Does the improved connectivity lead to more (or less) distraction?
- Are EVs consistently a different risk or does length of ownership matter?
- Are the ADAS features in EVs more/less effective than in ICE vehicles?
- Does the additional OEM data from EV’s help to better understand the risk?
All these questions, and more, can be answered by delving into telematics data combined with the more traditional underwriting factors and we are already seeing some interesting results in preliminary analyses carried out for some of our clients.
- EV’s are driven 4% more smoothly but also slightly faster
- EV drivers suffer 2% less physical distraction from their mobile phones
- EV’s are driven 13% greater distances
Performing a true comparison requires using GLM or ML techniques to investigate claims experience on EVs, ICE and hybrid vehicles; standardising for other risk factors such as age of driver and year of manufacture as well as where, when, and how the vehicle is driven.
Understanding this is vital to create your strategy for 2024/25. Do you want to:
- drop out of EV insurance like John Lewis (and underwriter Covea) did in late 202311 ;
- temporary cease underwriting certain models until you have more confidence as Aviva did last year with the Model Y12 ; or
- grow your book by creating new tailored EV products like ElectriX by LV=
If you would like to know more about how The Floow can help you understand the true EV risk on your portfolio and create a profitable strategy for 2024/25 please contact andy.goldby@thefloow.com
References:
[1] SMMT data for November YTD (https://www.smmt.co.uk/vehicle-data/evs-and-afvs-registrations/)
[2] https://www.msb.se/sv/aktuellt/nyheter/2023/maj/brander-i-eltransportmedel-under-2022
[3] https://www.evfiresafe.com/ev-fire-faqs
[4] Deloitte Motor Seminar statistics July 2023
[5] https://tide.theimi.org.uk/industry-latest/news/imi-response-mot-consultation
[6] https://www.fleetnews.co.uk/news/insurance-industry-defends-high-premiums-for-electric-vehicles
[7] https://www.fleetnews.co.uk/news/insurance-industry-defends-high-premiums-for-electric-vehicles
[8] Highway Loss Data Institute, “Insurance losses of electric vehicles and their conventional counterparts while adjusting for mileage,” HLDI Bulletin (Vol. 37. No. 25), December 2020, https://www.iihs.org/media/ca2618fc-c875-4246-8a9f-5977f3b702f6/Ewxm_A/HLDI%20Research/Bulletins/hldi_bulletin_37-25.pdf.
[9] https://etrr.springeropen.com/articles/10.1186/s12544-022-00529-2
[10] Munich Re EV report 2022
[11] https://www.ft.com/content/0b4e4deb-10ec-4127-a563-f7791ad16527
[12] https://www.theguardian.com/money/2023/sep/30/the-quotes-were-5000-or-more-electric-vehicle-owners-face-soaring-insurance-costs
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