What EV accidents mean for auto insurance pricing

Fast-paced electric vehicle (EV) sales could sharply change the auto insurance pricing dynamic, says a new report from Morningstar DBRS.

“More than 15 countries, including the United Kingdom, Japan, and Canada, have initiated climate policies mandating 100% zero-emission vehicle (ZEV) new vehicle sales targets for light-duty vehicles by 2035 or earlier,” the ratings agency notes.

“Although governments have incentivized the reduction in the numbers of internal combustion engines (ICE) vehicles on the road, the cost of insuring ZEVs is becoming a deterrent for mass adoption.”

Despite government purchase incentives and heavy investment in charging infrastructure, auto buyers are grappling with higher EV sticker prices as well as higher costs to insure them.

Canada’s experience will likely track what’s happening in Europe and the U.K., where Morningstar DBRS notes, “insurers…have had to adapt to the rapid pace of adoption by proactively reviewing pricing models as more EV claims data are generated.”

“This has led to significant rate increases partly because of the higher price tag of EVs and partly because they are more costly to repair.” A February 2024 report from Morningstar DBRS said insurers could expect more total losses when EV owners are in accidents due to the high cost of repairing those vehicles’ batteries.

 

Insurance options

High repair costs have led some EV manufacturers to create bespoke insurance subsidiaries or partner with niche insurance firms to provide coverage for their own brands.

“This is a trend that could gain momentum, potentially changing the landscape for private passenger automobile insurance in the future with some premium dollars shifting to insurance subsidiaries of large EV manufacturers or niche bespoke auto insurance players that provide exclusive coverage for specific EV manufacturers,” Morningstar’s newest report says.

At present, it’s too early to determine whether the trend will impact short- or medium-term earnings or credit ratings at insurers, the agency rates.

Because EVs are recent market entrants, insurers don’t yet have historical claims data to estimate the vehicles’ durability lifecycle accurately. Same goes for maintenance and repair cost data.

“These vehicles are, in effect, computers on wheels, packed with expensive and complex parts and advanced technology that can make EVs expensive to repair after a collision,” the report says. It adds anecdotal evidence and press reports from the U.K. suggest insurance costs for EVs are rising in the high double digits (nearly 75%) in 2023, compared to around 25% for a conventional automobile.

In 2022, the U.K. saw a 6.98% increase in registrations for new EVs, while Europe saw a 21.6% rise. Canada experienced a record 86,032 new electric vehicle registrations in 2021, which accounts for 5.3% of total vehicle registrations that year. Of those new EV registrations, 43% were in Quebec, 28% in British Columbia and 23% in Ontario, according to Statistics Canada.

There is some data to suggest waning buyer interest in EVs, at least in Ontario. A recent survey by LowestRates.ca finds 43% of polled Ontario drivers were considering buying an EV but notes 75% of them had concerns about purchase, maintenance and repair costs, availability of charging stations, and the practicality of charging cars at home.

 

Feature image by iStock.com/Just_Super