Overcoming the hurdles of EV Insurance

Insurance professionals need to evaluate the risks associated with driving what is after all, very new technology in the overall evolution of cars.  From the different driving dynamics of handling an EV, to alternative diagnosis and repair options, there is lots to learn about the risks that come with driving this cleaner, greener vehicle.  LexisNexis Risk Solutions is working hard to bring a greater understanding of EV driving risk to motor insurance providers.

The world does need to decarbonise and doing that means reducing emissions. There's only really one way that we can help to reduce emissions, and that's the adoption of new energy vehicles. 

The choice of these is burgeoning. In the U.K. there's an electric vehicle available now across most market segments, from superminis to SUVs and sports cars.  Indeed, there are 102[i] different EV vehicle models to choose from, so it is far from a niche product. With a healthy supply of vehicles emerging in the U.K. market from both existing and new manufacturer brands in China, competition in the market is becoming increasingly fierce.

Range Anxiety is Easing

Traditionally, one of the main challenges with the adoption of an electric vehicle has been range anxiety. With today’s vehicles now averaging a range of 230 miles, the fear of running out of charge is lessening. Increasing numbers of charging facilities and faster recharge times are all helping to reduce this concern. Add to this the fact that Total Cost of Ownership achieves parity with Internal Combustion Engine (ICE) vehicles around year three and  the choice to go electric is, for many an entirely logical one.

Many drivers purchase their new EV via finance and from an affordability point of view, consumers will look at the monthly running costs of their vehicle. This is where getting competitively priced insurance can play its part in the continued transition to EVs and a reduction of emissions.

Understanding the ICE and EV Differences

So, what are the engineering differences between ICE vehicles versus and EVs which will affect the cost of insurance? The electric motor has very different characteristics to an ICE vehicle, it offers rapid acceleration and instant throttle response with the biggest difference being the high energy, high voltage battery. The high voltage battery adds significant weight to the vehicle so overall mass is increased too.

There is also no transmission. While there is reduction gearing, there is no gearbox, so no gear changing for the driver and the ability for the motor to deliver optimum power regardless of any gearing. Another massive difference between EV and ICE vehicles which plays a part in insurance risk, is the number of moving parts. An ICE vehicle has around 1400 components while an EV has just 200[ii]. This leads to hugely different servicing and repair costs.

Despite being at an early stage in EV data collation, the insurance industry will benefit from the fact that so many models of EV share the same build platform, often referred to as a “skateboard planform” . This underlying platform is common to a whole range of vehicles and as data is received and analysed from these vehicles sharing the same build type, data providers like LexisNexis Risk Solutions can learn lessons about risk much more quickly. We’re also working with colleagues in China which has half of the world’s EVs, comparing different types of EVs examining over 70 different attributes on each vehicle, from the battery chemicals to the power of the motor.  We’re leveraging a tremendous amount of data to help insurance professionals manage risk.

So how do the differences in ICE vehicles and EVs translate to insurance risk? There are three issues that need to be considered.

Easly days for data collection

Firstly, because EVs are a ‘new’ technology, there has been limited data and insight.  This is quickly changing though, as more insightful data is now being gathered, at speed from the shared platforms. 

The second point is new technology. With any new technologies, initially there's a price premium and EVs are no different, particularly with high voltage batteries, which can cost anything from £10,000 to £20,000.  Parts availability and getting the repair industry up to speed with training and repair methods also need to be considered.

Different Driving Dynamics

The final challenge that insurance professionals must consider is the difference in driving dynamics. With a higher power and torque output, instant throttle response, heavier vehicles leading to greater momentum and regenerative braking characteristics, EVs can take some getting used to driving.  In fact in the United States we found claims frequency when moving from ICE to EV rises by 14.3% while claims severity, the value of settling a claim also increases by 14.5%.

EVs are better equipped with ADAS

A separate consideration in assessing insurance risk for EVs is Advanced Driver Assistance Systems (ADAS).  EVs have a greater number of ADAS features than their ICE equivalents, and we know through our data enrichment solution, LexisNexis® Vehicle Build enables that there is a 31% reduction in claims frequency with the right type of ADAS features. 

However, when a claim does occur, Thatcham Research data shows that EV claims are 25.5% more expensive than their ICE equivalents and are taking 14% longer to repair[iii]. It’s for this reason that Thatcham Research is leading initiatives such as insurability by design[iv], while research and testing is underway on more comprehensive repair methods, improving diagnostic capability and developing recycling processes for EV batteries to help offset the cost of a claim.  All this aims to help drive the cost of EV repairs down in the future.

Key to key time cut from 26 to 15 Days

Reducing key to key time will also help bring down the cost of a claim. While there will be variances based on make and model there have already been significant improvements.  2023 saw average key to key time for an EV fall from 26 days to 15[v]. 

We’re on a journey but the destination is worthwhile

The EV market is on a journey, journeys can be complex and a little bumpy at times. That's certainly the case with the adoption of electric vehicles and the understanding of them from an insurance point of view.  Already more research is beginning to deliver greater levels of data, vehicle makers are focusing on insurability by design, training and repair methods are quickly improving and over time, parts costs will lessen. It seems that the road to EV adoption is being helped by collaboration and despite a rough ride, the destination will make it worthwhile.

 

This article relates to our recent podcast: https://gateway.on24.com/wcc/eh/2726439/lp/4631171/overcoming-the-hurdles-of-battery-electric-vehicle-insurance