What Does the Evolution of Electric Vehicles Mean to the Insurance Industry?

This piece is by Rick Preston, Partner & Head of Intelligence Services at HF, and it looks at how the insurance sector needs to evolve and adapt to a hybrid and battery car market:

The emergence of electric vehicles (EVs) into the mass market marks a significant evolution and one that impacts insurance companies. The unique issues surrounding EV-related claims has the potential to increase claims costs significantly with the resulting impact on bottom-line profits. Now is the time for all insurers to be vigilant in handling EV-related claims as statistics and insights from HF’s data analytics tool Car Wash are showing.

There are several ways that EV claims stand out, particularly those involving credit hire claims.

Statistics from Car Wash show:

• Approximately 2% of all claims involve a fully electric claimant vehicle.
• 46% of hire vehicles are electric when the claimant vehicle is electric, demonstrating the prevalence of electric credit hire claims.
• The average hire duration for EVs stands at 38 days, significantly longer than the 22 days for non-EVs.
• EV hire vehicles command a higher daily rate of £262.12 compared to £147.10 for non-EVs
• The average EV hire claim amounts to £14,225.76.
• HF’s internal data reveals cost mitigation strategies result in an average saving of £7,124.7 on settled EV cases.
• Our Car Wash tool achieves a significant match rate of 7.8% on EV claims, showing discrepancies which could influence settlement on claims involving both EV claimant and hire vehicles.

The Cost Conundrum: Why EV Claims Stand Out

Electric vehicle claims give rise to distinct financial considerations compared to traditional combustion engine vehicles. Several factors contribute to the comparatively higher costs associated with EV claims, including:

• Newer Technology: The relatively recent growth in EVs translates into an equally new and immature repair infrastructure for the electric powertrain. Options for parts are gradually expanding but the current landscape offers fewer choices. As EVs gain market share, the availability of repair options is expected to improve, but for now, the limited choices contribute to higher repair costs.
• Tesla Dominance: Tesla’s dominance in the electric car market significantly influences repair costs. Studies, including recent data from claims management specialists Mitchell, reveal that the average accident repair cost for a Tesla is approximately £1,000 higher than that of
petrol cars. Their dominance therefore influences the financial impact of EV claims on insurance companies – however, with improved repairability along with much-improved parts supplies on successive models, this on-cost should reduce.
• Skilled Technicians: Repairing EVs demands specialised expertise, processes and equipment. Not all mechanics are equipped with the necessary qualifications to handle EV repairs, leading to increased costs and longer lead times for maintenance, MOTs and repairs.

Additional Technical Considerations

The unique aspects of EV technology further complicate insurance claims and repairs:

1. Specialist Repairs: The likely emergence of demand for lower-cost refurbished or repaired sub-assemblies and manufacturer-specific knowledge-based repair will influence future cost structures.
2. Tyre Wear and Maintenance: EVs tend to wear out tyres faster due to high low-end torque and additional weight compared to internal combustion vehicles. However, they generally require less regular maintenance.
3. Battery Costs and Supply Chain Issues: The battery is the dominant cost in an EV, with a high replacement cost. Transportation of finished Lithium-Ion batteries is challenging, with some carriers refusing to handle these products. With China as the global source for 70% of Li-Ion batteries, supply chain vulnerabilities are significant, potentially leading to weeks of delays.
4. Repair Infrastructure: Appropriate lifts are needed for EVs, which weigh between 2 and 3 tonnes, and for battery packs weighing between 300 and 660 kg. Damaged EV storage might require an exclusion zone, and charging infrastructure may necessitate installation of a dedicated three-phase supply to the repair facility.
5. Safety and Training: Technicians must be trained to handle high voltage safely and need the correct safety equipment and vehicle-specific repair instructions.

Navigating the EV Insurance Landscape

For insurance companies, awareness and understanding of this data and the insights it offers are crucial. That will inform the proactive measures and strategies that need to be implemented alongside their trusted business partners.

• Specialised Training: Investing in training to provide mechanics with the skills required for EV repairs can mitigate repair costs and reduce lead times, enhancing operational efficiency.
• Verification of appropriate equipment, safety protocols as well as the level of trained personnel undertaking repairs will be required by insurers.
• Strategic Partnerships: Collaborating with EV manufacturers and repair networks can foster access to specialised parts and repair services, facilitating timely and cost-effective claim resolution. Working with legal partners who understand the complex factors involved can result in better outcomes for both the insurer and their customers.
• Data-Driven Decision-Making: Leveraging advanced analytics tools like HF’s Car Wash enables insurance companies to identify trends, assess risk profiles, and optimise claims management strategies, in order to efficiently manage operational costs.
• Policy Adjustments: It’s crucial to review motor insurance policies to take into account the unique characteristics of EVs, ensuring adequate coverage and appropriate pricing.

The rise of electric vehicles is a transformative shift in the automotive industry, presenting both challenges and opportunities for insurance companies. As EV claims increase, insurance providers must proactively adapt their strategies and policies to effectively manage the financial implications associated with EV-related claims.

By leveraging insights from data analytics tools and working closely with trusted suppliers, including manufacturers and legal representatives, insurance companies can implement targeted strategies. Armed with that combined knowledge and expertise, insurers can move forward with sustainable, profitable businesses in an increasingly electrified future.

It’s important to remember that EVs are not the universal solution. Internal combustion enginepowered PHEVs and HEVs will continue to demand elements of conventional as well as EV system repairs, with on-cost risks.