One of the paradoxes of new technology is, while it may reduce costs in the long run, it significantly increases them at the beginning. That is particularly true of electric vehicles (EVs), which are still out of reach of many drivers’ budgets. The initial cost is considerably higher than for their fuelled counterparts and, in general, it costs more to insure them too.
The risks of EVs
Paying more to insure EVs may seem counterintuitive in two ways. First, they have many of the safety features of fuelled vehicles and fewer moving parts to be fixed or replaced. Second, there is no logical reason to assume that drivers of EVs would take any more risks on the road than drivers of other vehicles.
At the same time, it is difficult to accurately measure the insurance risks of these vehicles or their drivers when there are still so few of them.
It is clear that EVs are still relatively nascent in, for example, India, United States, United Kingdom and Australia. These countries are a long way from achieving what poster child, Norway, has with EV uptake. However, the Norwegian government was much more active in promoting EVs in that country than other governments have so far demonstrated.
Compare minimum levels of insurance
EV owners need to know the minimum cost of insuring their vehicles to drive on the road, as well as what kinds of insurance they might choose for further protection. Even these minimum levels vary. In the US, for example, EVs cost about 21% more to insure than similar fuelled models. In the UK, according to Vantage Insurance, it costs about 14% more to insure an EV. Meanwhile, the picture is muddier in India and Australia.
Australian insurers do not differentiate
Australian insurers do not differentiate between a fuelled and electric car when setting their premiums for compulsory third party insurance. This is the one vehicle owners must have just to drive on the roads. Insurers who offer comprehensive, fire and theft, or third party property damage – extra discretionary insurance – do not differentiate on the basis of whether they are electric or fuelled.
At the same time, it is up to state governments to decide whether they are going to provide any kind of incentive for people to switch to EVs. Discounts on mandatory insurance or vehicle tax do not seem to be readily forthcoming.
Third party insurance is cheaper in India
In India, the Insurance Regulatory and Development Authority of India (IRDAI) just announced a 15% discount on premiums for private EV third-party liability insurance cover from 16 June 2019 and beyond. This is the lowest level of cover an Indian vehicle owner can hold but, at the same time, there are currently very few owners of EVs to take it up.
The IRDAI first launched in 2015 its FAME-India policy, designed to promote Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles. Its more recent iteration, FAME II, offers subsidies of INR 10,000 Cr to promote electric vehicles used for public transport. Until now, only five car manufacturers have stepped forward to be registered for this scheme. The race to electrify in India is still at tortoise pace.
Why can EVs cost more to insure?
There are two main reasons why insurance premiums can be higher than for conventional vehicles, and they are conventional reasons.
First, EVs are considered to be luxury cars as their initial price may be nearly double the price of the fuelled model. Insurers are aware it costs them more to replace a luxury car than it does a regular one, for example, in case of theft. Australian owners of luxury, fuel-efficient cars pay a luxury car tax of 33% above $75,526 as well as higher premiums for their insurance.
Second, the cost of repairing EVs is much higher than for fuelled vehicles. This is because they naturally require different types of parts and because only trained technicians are able to carry out specialised repairs. Both parts and labour are pricier for an EV and, if it happens to be involved in an accident, the battery pack is particularly expensive to replace.
The Association of British Insurers confirmed these two reasons for high premiums and added, when more people purchase EVs, then there will be downward pressure on premiums.
Average cost of minimum insurance
Each country, or the states within them, mandate a minimum level of insurance on each vehicle. This is liability insurance, which covers bodily injury or property damage to someone else – a third party – in an accident caused by the vehicle owner. The average cost of insuring an EV varies widely depending on country of residence, as well as certain driver and vehicle characteristics, driving history or other risk variable.
Insure.com says the average cost of insuring an EV in the US in 2019 is $US1,812. However, its average is based on insuring a safe, low risk driver of a brand new EV in every state. Each state sets its own liability limits and the obligations of vehicle owners vary considerably. For example, the cost of insuring a BMWi3 in Michigan is two and a half times more than it would be in Maine.
Myev.com quotes $1,663 for a Kia Soul EV, but the traditional model costs 13% less than that. Owners of the Kia Soul EV are actually being asked to pay 15% more for the minimum level of auto insurance.
Minimum insurance is not enough
The minimum level of protection may also be inadequate. For example, collision insurance is a wise addition. Collision insurance covers repairs to the car in the event of an accident. Ironically, EVs are about 40% more likely to hit a pedestrian than a conventional vehicle, because they move along so silently. For this reason, the EU and others are mandating that EVs must make some kind of sound to protect pedestrians.
Some states in the US expect drivers to have uninsured/underinsured motorist cover, in case they are involved in an accident with somebody who has little or no insurance. This is more likely than it sounds, given the high rates of people driving with no insurance at all.
Comprehensive insurance is available in India to cover a wide range of losses the owner may sustain. They will pay a premium based on where they live, the Insured Declared Value (IDV) and the risk as viewed by the insurer.
In the UK, Nissan and Renault gave new owners the opportunity to lease rather than own the battery pack, which must be considered as part of the insurance package. Zurich says the driver also has a duty of care to be insured in case someone in a public place trips and injure themselves on the charging cable.
Given the high initial outlay for an EV, it makes good financial sense to insure it fully. While it may be more expensive to insure an EV, the running costs are much lower. This brings the story full circle. One of the paradoxes of new technology is, while it may reduce costs in the long run, it significantly increases them at the beginning.
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