Navigating the EV Transition: Insights for Auto Insurers
Electric vehicle (EV) adoption is rapidly changing the automotive landscape in the United States. According to a recent report published by the American Property Casualty Insurance Association (APCIA), EVs accounted for roughly 6.5% of new vehicle sales during the first half of 2023. The report further estimates that over one million EVs may be sold in 2023, a milestone that highlights the growing interest in clean energy vehicles. This trend is also reflected in a Pew Research Center survey, which revealed that nearly four in ten Americans (38%) are likely to consider an EV for their next vehicle purchase.
As more drivers embrace EVs, plug-in hybrids (PHEVs), and other low-emission vehicles, the APCIA is drawing attention to the evolving challenges and opportunities facing the insurance industry. “Many of the risks associated with EVs are similar to those for conventional vehicles [but] EVs present some unique risk factors that can drive insurance costs higher,” explained Ethan Aumann, the Senior Director of Environmental Issues and Resiliency at APCIA.
Aumann identified several key factors contributing to these shifts. EVs often have higher upfront costs and require more expensive repairs, which can also take longer to complete. Data security and privacy risks associated with the connectivity of vehicles and charging stations are also a concern. “The lack of consistency in EV design and battery standardization poses additional challenges for auto insurers,” Aumann added.
The APCIA report also noted that EV batteries, which can represent up to one-third of a vehicle’s weight, could potentially lead to more significant damage in accidents, including to road surfaces and other vehicles. Battery fires present another notable risk, with implications for both personal and commercial insurance lines. Furthermore, the industry faces challenges in accurately assessing the risks associated with advanced driving and safety features due to limited access to relevant data.
One of the most significant hurdles is the lack of comprehensive historical data on EV use and losses, which complicates the process of accurately predicting and pricing risks. However, this is expected to change as more EVs accumulate mileage on roadways. “As a greater number of EVs are on the road for a longer period, insurers will have additional historical data to more accurately assess risks associated with EVs,” Aumann stated.
Despite these challenges, Aumann noted that insurance companies are proactively preparing for the growth in the EV market. These preparations include training claims adjusters on EV-specific issues, ensuring that their direct repair networks can handle the necessary replacements, and leveraging available loss data to improve risk evaluations.
