Electric vehicles are slowly but surely gaining more and more of a foothold in the U.S. auto market. As battery electric models continued to evolve, over the past five years millions of Americans chose to recharge instead of refueling, while the number of electric vehicle registrations continued to grow globally.1
All this recent progress means auto insurers face the challenge of underwriting this relatively new technology.
While China leads the pack when it comes to electric vehicle adoption, Europe isn’t far behind and America is slowly catching up, as more publicly accessible charging stations continue to be built.2 President Joe Biden announced in August 2021 that he wanted electric vehicle sales to make up half of all car sales by 2030, and is even offering a tax credit for purchases of electric vehicles.3 4
But all this progress means auto insurers are finding themselves faced with the challenge of underwriting this relatively-new technology.
The cost of insuring electric vehicles
While some studies have found that electric vehicles are safer than gas-powered ones, the cost of insuring electric vehicles can be higher than gas-powered vehicles.5 6
This is because of a number of factors, including:
- Scarcity of repair shops. There aren’t as many repair shops equipped to fix electric vehicles after an accident, making it more difficult to find service. Parts are also not as easily available, which can also affect insurance cost.
- Costlier repairs. The materials for these vehicles, like sensors and batteries, are often more expensive than the materials for gas-powered vehicles. While prices for electric car batteries have begun to drop, the average battery cost for an electric vehicle is about $6,300.7 An accident that might have just been a fender bender in a gas-powered car can become a much larger loss for an insurance company if the battery is affected.
- Battery fires. While battery fires are relatively rare, major auto manufacturers have recalled electric vehicles because of the risk of battery fires, creating another possible liability for insurers.8 While gas-powered vehicles can also catch fire, the batteries in electric vehicles can be composed of toxic materials, and upon collision, that material leakage can create another potential liability exposure.9
- Safety threats for pedestrians. One of the selling points of electric vehicles is their quietness. But that can also be a risk, because pedestrians can’t always hear an electric car coming towards them. The American government has mandated that electric vehicles have detectable sounds, but even so, your average electric vehicles remains quieter than your average gas-powered car.10
- Cybersecurity threats. Security experts have been sounding the alarm about the risks of hacking these Internet-connected vehicles, which can include both gas and electric vehicles, and some insurers have begun to respond by offering an auto hacking coverage option.11 It is widely believed that automation will affect commercial vehicles first, allowing for the possibility of an automated truck traveling cross country from one warehouse to another, opening insurers up to the possibility of car hijacking.
- In some popular electric vehicles, there is an option for automated driving, creating another point of liability. In 2016, an electric driver was watching Harry Potter while using this feature and was part of a fatal crash.12 As the courts work to figure out who is liable in accidents like this, insurers must account for the possibility of this technology failing.
Electric vehicles allow consumers to save on fuel costs, reduce their carbon footprints and even get tax credits in some states—and the American government is investing billions in them. In 2021, Biden passed an infrastructure law that allotted $5 billion in funding towards building a national charging network.13 Insurers may want to start considering how to underwrite for the new electric vehicle owners who will be coming to them for coverage.
Verisk has an ongoing focus on electric vehicles, including distinguishing these vehicles in our ISO Symbols and related data. Verisk is continuing to conduct research into the topic of electric vehicles, and Verisk is currently planning to add a class to its General Liability program with respect to electric vehicle charging stations. This filing is expected to be released in April 2023.
To hear more about the tools Verisk offers insurers for electric vehicles please reach out to Jim Davidson and Sandee Perfetto.