Moody’s Sees Rising Claims Costs as Cars Go Battery Powered

The stampede towards electric cars, vans and trucks continues, despite the child slavery involved in mining cobalt and the vast water, CO2, oil consumption and product miles associated with lithium extraction and outsourced battery pack manufacturing – plus future disposal of dead power cells.

For insurers, these ESG facts may well overwhelem feelings one day, when some kind of political reckoning will come. Meanwhile, every battery powered car involved in a collision is generally more expensive to recover, store and repair than a comparable class petrol/diesel car. Here’s the word on the US market from Moody’s;

In the US, the BEV market share hit 5.8% of new vehicles sales for 2022 from 3.2% in 2021 according to Cox Automotive. We project that BEVs will account for almost half of global auto sales by 2035. California and some other states are requiring BEVs to account for 35% for model year 2026 increasing to all new vehicles sold for 2035.

BEVs are more expensive to repair, increasing insurer costs. US auto insurers have posted weaker earnings over the last two years because of higher auto repair costs, including parts and labor, and higher used vehicle prices. Although the increase in BEV sales is likely responsible for a relatively small share of the increase in loss costs, their share of loss costs will increase for personal and commercial auto insurers over the coming few years as sales (and lease/rentals) increase. Battery and electric cable placement make BEVs more likely than ICE vehicles to be a total loss, even in minor collisions.

Insurers are responding by raising prices and taking into account BEVs’ higher repair costs in their pricing plans for collision coverage, which covers damage to the driver’s own vehicle. As the fleet share of BEVs increases, insurers will need to proactively incorporate the changing fleet composition into the liability portion of their pricing plans, which covers damage to third-party vehicles.

Smaller auto insurers in particular will need to improve their pricing sophistication. New risks from BEVs will also impact insurers. BEV fires are much more difficult to contain than gasoline fires, and a greater share of BEV fires occur when a vehicle is parked, which can damage homes and businesses. Insurers, regulators and the courts will need to work out who will be liable for these claims. In addition, insurers will need to respond to changing infrastructure, such as commercial and home charging stations, electrical transmission lines, and renewable energy sources including rooftop solar panels.

More Moody’s insights here.