The motor vehicle industry has been solely focused on the combustion engine since its inception. Decades of innovation and change have seen the respective insurance industry change and evolve too. But fundamentally, petrol and diesel have been the norm. This is changing and changing rapidly.
The advent of electric vehicles (EV) - both commercial and consumer - over the last decade is shaking up the automotive industry. Such vehicles are becoming increasingly effective, popular, and widely used. Statistics show that 11.6% of UK car sales in 2021 were electric, that’s almost 200,000 battery powered vehicles. Of that number, almost 12,000 were electric vans. Major companies that rely on fleets of commercial vehicles have started transitioning to electric. It’s now not uncommon to have your shopping delivered by an electric truck, travel by electric bus, or have packages shipped via electric van. These changes are being spurred on by net zero legislation dictating that no new petrol and diesel cars will be sold in the UK by 2030, and the whole UK haulage industry will use EVs by 2040.
This new kind of vehicle is clearly here to stay and is only growing in popularity as more and more people become climate conscious. So, it is no wonder that the automotive insurance industry is experiencing a shift as well. In this blog, we will cover the major effects of electric vehicles on commercial and consumer car insurance, delving into what it means for businesses and the public.
How is the insurance industry cateringto electric vehicles?
Increasingly, we are seeing insurers offering a variety of policies for those using EVs. Many have electric specific plans, as well as combination plans for households with electric and petrol cars. The new breed of cars are now increasingly covered under standard car insurance policies, as the number of electric vehicles on the road goes up and the lines between ownership become more blurred.
As risk data is gathered and analysed by insurance companies, more changes will be seen in the range of policies on offer. Rates for EVs are, overall, higher than those for combustion engine cars, though this is predicted to level out over the coming years.
Why does insuring an EV cost more?
Despite the current spread of government incentives for more widespread EV adoption, the key issue around EV’s is the higher cost across the board. Spending more on anything means insurance premiums will be higher. But with EVs, it goes deeper than that simple adage.
Cost of components
EVs are, put simply, more expensive to manufacture. Their systems are more complex and the infrastructure that has been built up over the last century for petrol and diesel vehicles is not there yet for electric vehicles. Evolving issues like shortages of vital resources like lithium or supply chain issues with elements like graphite – mainly sourced from China - may also drive up the price in time. Insurers will have to account for the risk of temporary or long-term issues with such resources, adjusting their premiums accordingly to ensure they are not the ones footing the bill.
Cost of repairs
Further to the above, repairs and maintenance of EVs requires specific skills and equipment, which are rarer to find. A simple fault in a combustion engine, that could be solved by any local garage or dealership, could cost significantly more to fix in an EV. Acquiring new parts for EVs can be similarly expensive, driving up that cost even more. Consequently, insurance claims for an EV will inevitably be for greater sums, with higher premiums and excess payments. When dealing with commercial fleet insurance, this only gets multiplied with the more intensive use of vehicles.
Batteries vs combustion engines
The above issues are especially relevant with the use of batteries, the backbone of EVs. The systems around a battery are often more durable than their counterparts, but the battery itself can cause issues. Though the technology is improving year on year, batteries are expensive. Heavy usage, same as with a mobile phone, steadily reduces their capacity. If using an EV for extensive personal use, or in commercial fleets of vehicles, this wear will become apparent over time. This of course is also an issue for standard engines, but the cost of parts and labour is overall much lower.
Another emerging issue is that EV batteries are either leased or owned by the operator of the vehicle. It is generally understood that if you buy a car, you own the engine that runs it. But with EV batteries, that is not always the case. Therefore, the status of the battery itself can impact the market value of the vehicle, which naturally impacts the insurance policy taken out for it. If it is leased, then payments will still need to be made even in the event of damage, which also needs to be accounted for. This detail needs to be declared at the time of purchase of an insurance policy and getting it wrong could lead to confusion and issues if a claim is made. This is doubly relevant in a fleet of commercial EVs, as complete clarity is needed for every vehicle in use.
Many EVs have high tech electronics and digital systems built into them. While these can be of great benefit for their drivers, it does leave more room for malfunction and glitches that once again requires a high level of expertise to fix.
Risk factors on the road
The usage of EVs does not necessarily bring higher risks than the use of standard cars and fleet vehicles. At the end of the day, if there is a road traffic collision, it is the drivers who will be held responsible.
But there are other considerations, like the fact that EVs tend to be heavier than direct counterparts with combustion engines. This has a dual effect of potentially protecting drivers and passengers more efficiently in road traffic accidents, but also risks greater harm being caused to others when an EV is involved in a collision.
There are numerous emerging realities with the more widespread use of EVs that users and insurers are only just coming to face and understand, that go beyond your standard road risks. Whilst a driver’s liability is unchanged, regardless of what powers their vehicle. But other factors are present that increase risk and therefore costs for EV insurance.
This lack of clarity is problematic. Claims and policies for petrol and diesel vehicles have years of precedent to work off, that EVs simple do not. The market is evolving, and EV policy holders will likely see major changes during the lifespan of their cover. Resolving a claim or underwriting an insurance policy is therefore more challenging, more costly, and comes with a higher risk of getting it wrong.
For example, if someone trips over a charging cable connected to a commercial vehicle, who is responsible for any potential claims that come from that?
- Is the company in question liable, as it owns the equipment?
- Is the driver who plugged the cable in liable for not taking proper precautions?
- Is the injured party responsible for not looking where they were going?
- Is the manufacturer liable for not making their cables visible enough for use in public or workplace environments?
- Is whoever installed the charging point liable for positioning the equipment in such a way that cables are obstructive?
If courtesy vehicles need to be provided for policy holders, is the insurer liable for the higher cost and difficulty of providing an EV? If a courtesy EV is not offered, how does that affect factors like environmental subsidiaries a business might receive for using EVs to cut carbon emissions?
These might seem like trivial concerns, but an insignificant situation like tripping over a cable could result in legal action, settlements, and claims procedures that take up valuable time and resources from a business.
Further risks associated with EVs
The technology built into most EVs opens them up to further risks from criminal parties. A user of EVs needs to consider the fact that their vehicle could get hacked into, putting passengers and bystanders at risk as well as potentially damaging the vehicle’s complex digital systems.
Charging points could be a source of vulnerability for companies using EV fleets, with cyber-attacks accessing their commercial vehicles, internal systems, and subsequently risking their ability to continue to operate. Even the simple risk of a charging cable being stolen needs to be accounted for when insurers are creating insurance products, and when consumers and business are choosing their policy.
All the factors this article discusses combine into an insurance landscape that is far more complex than most are used to. Until EVs are more widely used and the proportion of electric motors to combustion engines narrows, policy premiums and claims costs will be higher than most people are used to.
However, with public opinion on climate consciousness shifting, government policy changing, and the infrastructure around EVs growing, it seems like the ultimate transition to electric is on its way. Plus, there is no secret about the cost effectiveness of EVs overall. Avoiding the steadily climbing cost of petrol, the waiving of road tax and congestion charges, reductions of Corporation Tax, Benefit in Kind tax (specifically for company car users) and brand reputation benefits, can all contribute to recouping the cost of going electric.
The key to making sure that the insurance you get for your electric vehicles, be they personal or commercial, is speaking to a professional. Harborough Portas have decades of experience with all types of insurers, policies, and claims processes. To be certain that you are protecting your EVs properly, get in touch:
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