The High Cost of Insuring Electric Vehicles
Published on Nov 13, 2023webva1
Electric vehicle sales are surging, but electric vehicle owners may have an unpleasant surprise awaiting them when they try to purchase motor insurance: insuring electric vehicles tends to be much more expensive than insuring petrol and diesel vehicles. Some insurers even refuse to offer coverage.
The Rise of Electric Vehicles
Electric vehicles have enjoyed increased popularity as motorists look for more environmentally-friendly alternatives to petrol cars. Carmakers have also been investing heavily in electric vehicles in response to looming regulations. According to Reuters, the UK was scheduled to impose a ban on the sale of new petrol and diesel vehicles beginning in 2030. This ban has now been pushed back to 2035, a decision that has frustrated carmakers.
Despite the delay, electric vehicle sales are surging. According to CleanTechnica, plug-in electric vehicles claimed 23.1% of the UK passenger auto market in May 2023, up from 18.3% a year prior. The Tesla Model Y was the best-selling battery electric vehicle (BEV), reaching 2,509 sales in May.
Businesses are also investing in electric fleets. According to Precedence Research, the global electric truck market is expected to grow from $2.00 billion in 2022 to $20.25 billion in 2032. In the UK, Transport & Environment says electric trucks will soon be less expensive to own and run than diesel trucks. As a result, battery electric trucks could become common sooner than previously anticipated.
Motor Insurance Costs
Car insurance costs have been on the rise in recent years. Electric vehicle owners are seeing especially high costs.
According to the Association of British Insurers, the cost of fully comprehensive coverage in the UK climbed to £511 in the second quarter of 2023, up 7% compared to the previous quarter. Drivers who renewed their insurance paid an average of £36 more.
Electric vehicle owners can expect to pay even higher amounts. According to The Guardian, one Tesla Model Y owner saw annual costs skyrocket from £1,200 to more than £5,000, with some insurers flat out refusing to offer coverage. Other Tesla owners have shared similar complaints in online forums, reporting premium hikes of anywhere from 60% to 940%.
Causes Behind Premium Hikes
Insurers are raising premiums in response to their own growing losses. According to EY, UK motor insurers reported a net combined ratio of 109.5% in 2022 – a number that indicates a loss. With an expected net combined ratio of 108.5%, 2023 is unlikely to see much of an improvement.
High inflation is a key factor behind falling underwriting profitability. According to a report in the House of Commons Library, UK inflation reached a peak of 11.1% in October 2022. Inflation has since fallen, reaching 6.7% in September 2023.
Nevertheless, higher prices have already impacted claims costs. The Association of British Insurers says the cost of vehicle repairs increased by 33% between the first quarter of 2022 and the first quarter of 2023, with both labour and replacement part costs seeing significant hikes.
Rising repair costs are impacting all vehicles, but electric vehicles can be especially pricey to repair. According to The Guardian, analysts have put the claims costs for electric vehicles at 25% higher than those for petrol vehicles.
Business Insider explains that electric vehicles have fewer maintenance costs because they don’t need oil changes and have fewer moving parts. However, when repairs are needed, they are often expensive. Even new tyres may be more costly because they have to be able to handle heavier loads and faster acceleration.
In particular, though, damage to batteries can be a major cost. According to Reuters, battery packs account for approximately half an electric vehicle’s costs. Furthermore, it is often impossible to repair battery packs that have been damaged in crashes, even if the damage is minor. As a result, insurers sometimes have to write off such vehicles as a total loss.
Securing Insurance for Electric Vehicles
As electric vehicle sales surge, brokers can expect to encounter a higher volume of clients looking for insurance for their electric vehicles.
- Prepare clients for the increased insurance costs. High motor insurance costs are a reality for everyone right now, but the costs are particularly steep for electric vehicles. Drivers should build this cost into their budgets when deciding whether to buy electric vehicles.
- Anticipate difficulties with finding affordable coverage. Since some insurers are refusing to cover certain electric vehicles, obtaining coverage may be more difficult than usual.
Do you need help finding coverage for clients with electric vehicles? Costero Brokers can help you find coverage for hard-to-place risks. Contact us.