Bloomberg thinks that the costs of repairing, recalibrating and storing EVs could cause a claims headache for insurers. They could be right up to a point, as the infrastructure regarding safe battery pack storage at scale, not the present low level of EV repair, would be ridiculously expensive in the UK, where land is expensive to rent and manage.
But assuming EV vehicle access is reserved for the political and tech elites in society, this won’t be a long term problem. Once the poor are forced off the roads and into 15 minute city zones, there won’t be a stream of time consuming EV repairs in 100s of bodyshops across the country. Also ADAS advances could mean a net reduction in vehicle collisions of say 20-30% by 2035 as battery cars replace older petrol and diesel cars.There are still vandalism and theft attempt damage incidents to think about however. Again, any reduction in accidents per mile via smarter vehicle tech takes the pressure off insurers to a degree.
But in the meantime Bloomberg have offerted these insights into the EV repair process and how it might impact insurance brands.
Kevin Ryan, Senior Industry Analyst, Insurance at Bloomberg Intelligence said: “Electric vehicles (EVs) made up 23% of all new UK auto sales in 2022, and while insurers charge 12% more on average to insure them, that may not be nearly enough. Repairing a damaged EV can cost 53% more than a conventional auto fix. EV batteries also have uniquely challenging risk profiles capable of significantly boosting insurers’ third-party costs.
“We therefore contend that the 12% extra average cost to insure an EV is probably an inaccurate reflection of additional risk, squeezing margin at Admiral, Direct Line, Hastings and other auto insurers.”
The report, titled ‘UK EV-Insurance Headache’, continues:
Direct Line Pressured More Than Peers
Direct Line’s profit would appear to be under more pressure than peers, despite recording similar levels of claims inflation, whereas Admiral and Hastings seem to be handling the challenging trading environment better. An element of the latter that’s underappreciated, based on our analysis, is the steady rise of electric vehicles (EVs) on UK roads.
The increase in registrations of these vehicles could potentially sap industry profitability further, with EY predicting the industry will post a combined ratio of 115% in 2022 and 114% in 2023.
UK Electric-Vehicle Sales Made Up 23% of 2022 Total
Demand for electric vehicles (EVs) has climbed steadily in recent years in the UK, reaching 23% of all new sales in 2022. That’s a steady increase from 19% in 2021, 12% in 2020 and the 9% in 2019. These are important statistics for the insurance industry, because they flag that the changing nature of vehicles on UK roads. It’s also noteworthy that the two most popular models in 2022 were the Tesla Model Y and the Tesla Model 3, according to the Society of Motor Manufacturers and Traders (SMMT) which accounted for 46% of EV sales. These are relatively expensive vehicles, suggesting repair costs in the event of an accident are likely to cost insurers much more.
EV Claims Costs Could Burn Insurers’ Margins
According to LeasePlan, average insurance premiums for EVs are 12% higher than those of internal combustion engines (ICE) autos, indicating that UK auto insurers recognize the differences in risk. It nevertheless appears that increased premiums could be inadequate, given the very different construction of EVs, the risk this poses and repair costs when an accident occurs. There’s no reason to suggest that EVs are more likely to catch fire following an accident than ICE vehicles.
However, fire-safety and investigations company, Park Lodge International, believes an EV on fire would burn at as much as 1,300 degrees C compared to 600-700 for a conventional vehicle. An accident triggering an EV’s airbags will generally shut off the electricity, but not in all cases, posing risks to those recovering an accident.
EV Technology Can Cost 53% More to Fix
The purchase price of an average EV in the UK is significantly more than an ICE equivalent, based on Office of National Statistics (ONS) data. The average EV retailed at £36,633 in 2021 (latest figure available) compared to £29,018 for an ICE vehicle, a 21% difference. This likely reflects the array of lightweight aluminium and carbon fiber used in EV manufacture, in a bid to offset the battery’s weight. Fleet Europe, an auto leasing company, believes that repairing a damaged fender/front of an EV costs 26.6% more than a similar job on an ICE vehicle. This cost increases to 53.3% more for luxury EVs vs. conventional autos. We therefore contend that the 12% extra average cost to insure an EV is probably an inaccurate reflection of additional risk, squeezing margin at Admiral, Direct Line, Hastings and other auto insurers.