The global market for electric vehicle (EV) insurance is rapidly expanding, estimated to quadruple by 2030, but higher accident rates and steeper repair costs for EVs are creating challenges for insurers to maintain underwriting profitability in this burgeoning market segment, according to a new report from the Swiss Re Institute.
The electric vehicle market has experienced a surge in growth in recent years, with global EV sales reaching nearly 14 million units in 2023, a 35% increase compared to the previous year. EVs now account for 18% of all new car sales worldwide, highlighting their move into the mainstream, the report notes.
Industry experts predict this robust growth will continue in the coming years. The International Energy Agency (IEA) projects that global EV sales will increase at an average annual rate of approximately 30% from 2022 through 2030.
The rapid rise in EV adoption is fueling corresponding growth in adjacent industries like EV insurance. Research by Allied Market Research projects that the global EV insurance market will expand from $51 billion in 2022 to over $200 billion by 2030, driven by double-digit annual growth rates throughout the decade. As more consumers switch to electric vehicles, demand for specialized EV insurance policies is poised to skyrocket.
Challenges for EV Insurance Underwriting Profitability
The rapid rise of electric vehicles is introducing new challenges for auto insurers in maintaining underwriting profitability, according to Swiss Re.
One emerging issue is that EVs are exhibiting higher accident rates compared to traditional internal combustion engine (ICE) vehicles. In China, one insurer has reported that the accident frequency for EVs is nearly double that of ICE vehicles, partly attributed to a higher proportion of EVs being used commercially.
When accidents do occur, EVs are proving significantly more expensive to repair. A 2022 study in the U.S. found that on average, total repair costs for EVs were 26.6% higher than for ICE vehicles. Similar trends have been observed in Europe, with a German study showing EV repair costs 30% to 35% higher, while data from the U.K. revealed a 35% increase in accidental damage costs for electric models.
Several factors are contributing to the elevated repair expenses for EVs, per Swiss Re. The main engine and battery are typically located at the front of the vehicle, an area prone to damage in a collision. Electric cars also incorporate more advanced technology like digital sensors, lasers and radar that add significantly to repair costs when damaged.
The high degree of embedded software and driver assistance systems in EVs means more labor time is required for diagnostics and calibrations by mechanics. Additionally, the integrated design of many electric models makes them inherently more difficult and time-consuming to repair.
For auto insurers, these higher accident rates and steeper repair costs are putting pressure on underwriting margins for EV policies, necessitating new risk models and pricing approaches to ensure sustainable profitability as electric vehicle adoption continues to accelerate, Swiss Re explained.
Potential Solutions to Address EV Insurance Challenges
As the electric vehicle market continues to grow, some automakers are taking steps to tackle insurance challenges head-on. A number of EV producers have begun acquiring their own insurance licenses, allowing them to underwrite policies for their vehicles directly, the report states.
Others are partnering with established insurance companies to offer risk coverage as part of the vehicle purchase process. By bringing insurance in-house or aligning with experienced insurers, EV manufacturers aim to streamline the buying experience and alleviate coverage concerns for potential customers.
While these individual initiatives are a good start, deeper cooperation between the auto and insurance industries may be key to overcoming near-term obstacles in the EV insurance market.
“EV producers know their vehicles’ risk features and are accumulating driving data, while insurers are accumulating claims experience,” the report’s authors stated.
Pooling this wealth of knowledge through joint innovation efforts could support the development of customized EV insurance products that better serve consumers’ need, Swiss Re concludes.
For a copy of the report, visit the Swiss Re website.