Insuring electric vehicles: A growing opportunity with near-term challenges
by Xin Dai & Roman Lechner, Swiss Re Institute —
Electric vehicle (EV) sales are forecast to grow 30% annually up to 2030, and the market for EV insurance is growing rapidly with it. Estimates place the global market size at over USD 200 billion by 2030, versus USD 51 billion in 2022. EV driving behaviours, repair costs and vehicle risks are impacting underwriting profitability and may require closer links between carmakers and re/insurers.
Highlights:
- Electric vehicle (EV) sales globally are forecast to grow 30% per year.
- EV adoption creates new insurance risk features due to changes in driving behaviours, usage, repairability and vehicle features.
- The EV insurance market is forecast for double-digit growth in the coming years but underwriting profitability is challenging.
- Despite high premiums, insurers saw combined ratios of over 100% for EV insurance in 2023.
- Deeper cooperation of EV insurers and carmakers may help to support better outcomes for all parties.
Global sales of electric vehicles (EV) are growing fast and emerging as a new risk pool for the motor insurance industry. Close to 14 million EVs were sold globally in 2023, up 35% year-on-year and accounting for 18% of all car sales. Sales vary widely by country, at about 10% of all cars sold in the US, 38% in China and 22% on average in the EU. In the Nordic countries, EVs are above 50% of all car sales. The International Energy Agency (IEA) expects EV sales to grow at an average ~30% annually from 2022-30.1EVs are expected to be half of all new car sales globally by 2035, with 73 million units estimated to be sold in 2040.2 The insurance market for EVs is growing at a similar rate. Recent studies estimate double-digit annual growth rates up to 2030, taking the global market size to more than USD 200 billion in 2030, from USD 51 billion in 2022.3Higher accident rates and repair costs pose near-term underwriting challenges that may require deeper engagement of insurers with EV producers to address.
EV adoption is establishing new driving behaviours, vehicle risks and repairability that create new risk features for insurers.5The key new driving behaviour is that EVs accelerate very abruptly from a stationary position compared with internal combustion engine (ICE) cars. This can create a higher probability of accidents and collisions causing own damage in crash tests.6 In China, an insurer has stated that the EV accident rate is nearly double that of ICE vehicles, attributed partly to a higher share of EVs in commercial use.7 EV vehicle risks centre on charging infrastructure installation and operation, and battery-as-a-service solutions such as battery swapping. Accumulation of fire and explosion risks also raise property- and liability-related exposures.
EV repair costs are generally being found to be higher than ICE cars. A US study in 2022 found total repair costs were on average 26.6% more for EVs.8This is confirmed by a study in Germany,9which exhibited 30%-35% higher costs, and UK data showing 35% higher EV accidental damage costs.10
There are several reasons: the main engine plant and battery are at the front of the car; EVs have more digital sensing or laser/radar devices that create higher costs for repairs. EVs typically need more labour time for diagnostics and calibrations due to their high use of embedded software and driver assistance systems, and many EVs are highly integrated, so harder to repair.
To support sales, EV producers are acquiring their own insurance licences,10and some are partnering with insurance companies to offer risk covers.11 However, the new risks and repair costs associated with EVs can lead to challenges for the insurance industry. In China the average EV insurance premium for drivers was 81% higher than for standard motor in 2023, and similar for European markets. The average UK premium for EVs jumped to GBP 1344 (USD 1700) at the end of 2023, around double the cost of cover for ICE cars, according to UK broker Howden.12However, the premiums may still not be covering the underwriting losses. For EV insurance providers in China the combined ratio was above 100% in 2023, and the growing share of EV premiums of motor total pushed the overall sector combined ratio higher.13One Chinese insurer noted that the loss ratio for EV cover is probably over 10 percentage points above standard motor.14
Deeper co-operation between re/insurers and EV producers may help to overcome the near-term underwriting challenges. EV producers know their vehicles’ risk features and are accumulating driving data, while insurers are accumulating claims experience. Joint innovation could support EV insurance that integrates insureds’ driving behaviour, or provides customised or added-service solutions to insureds, for example on repairs and maintenance.
Learn more, with additional figures, from Swiss Re.
Notes
1 Global EV Outlook 2024: Moving towards increased affordability, Global EV Outlook 2024, IEA, April 2024.
2 Electric Vehicles are Forecast to Be Half of Global Car Sales by 2035, Goldman Sachs, February 2023.
3 Gearing up for the electric vehicle ecosystem, Swiss Re Institute, January 2023.
4 Electric car sales 2016-2023, IEA, 2024.
5 Gearing up for the electric vehicle ecosystem, Swiss Re Institute, January 2023.
6 E-crash – electric traffic, Axa, August 2019.
7 CPIC says accident rate of EVs is nearly double that of gasoline vehicles but hopes to achieve profitability in EV insurance sector earlier“, National Business Daily, 28 August 2023.
8 Electric vs ICE Vehicles: Unpacking Repair Cost Impacts, CCC Intelligent Solutions, July 2022. E-cars are a third more expensive to repair than comparable combustion cars, GDV, October 2023
9 E-cars are a third more expensive to repair than comparable combustion cars, GDV, October 2023.
10 “EVs Cost Twice as Much to Insure as Fuel-Burning Cars in UK”, Bloomberg, 24 January 2024.
11 “Tesla insurance and 2023 with nearly USD500M in written premiums”, coverage.com, 2024.
12 Bloomberg op. cit.
13 Swiss Re Institute-collated data from public statements and speeches by insurance companies in China.
14 “President of PICC P&C Insurance: The loss ratio of new energy vehicle insurance in the entire industry is probably more than 10 percentage points higher than that of fuel vehicles,” The Paper, March 2024.
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SOURCE: Swiss Re