EV Market Growth Fuels Insurance Opportunities and Challenges
The electric vehicle (EV) market is experiencing rapid expansion, with the International Energy Agency (IEA) projecting an average annual growth rate of 30% through 2030. This surge translates into a substantial market opportunity for insurance providers.
By 2030, the global EV market is anticipated to reach over $200 billion, a significant leap from the $51 billion recorded in 2022, according to Swiss Re. Projections indicate that EVs will constitute half of all new car sales globally by 2035, with an estimated 73 million units sold by 2040.
EV Sales on the Rise
In 2023 alone, nearly 14 million EVs were sold worldwide, reflecting a 35% increase compared to the previous year. EVs now account for 18% of total car sales globally. However, adoption rates vary across different regions. For example, EVs make up approximately 10% of all car sales in the United States, 38% in China, and 22% on average in the European Union. Notably, EV sales have exceeded 50% in Nordic countries.
Challenges in the EV Insurance Market
The rapid rise in EV sales has correspondingly spurred growth in the EV insurance market, which is expected to see double-digit annual growth rates up to 2030. Despite these positive projections, this emerging market presents considerable challenges for insurers. The higher accident rates and repair costs associated with EVs have begun to impact underwriting profitability.
EVs pose unique challenges for insurers due to new driving behaviors, vehicle risks, and repair complexities. One key factor is the rapid acceleration of EVs from a standstill compared to internal combustion engine (ICE) vehicles, which often leads to a higher probability of accidents, particularly in urban environments. In China, the EV accident rate nearly doubles that of ICE vehicles, influenced by the higher share of EVs used commercially.
Moreover, EV repair costs are significantly higher than those for ICE vehicles. A 2022 study conducted in the US revealed that EV repair costs were, on average, 26.6% higher. Data from Germany and the UK also confirm this, with repair costs for EVs being 30% to 35% higher. This increase is attributable to the advanced technologies in EVs, including digital sensors, laser/radar devices, and sophisticated software systems, all of which require more labor-intensive diagnostics and repairs.
To address these risks and support sales, some EV manufacturers are either acquiring their own insurance licenses or forming partnerships with established insurance providers. Yet, the unique risks and increased repair costs associated with EVs have resulted in higher insurance premiums. In China, the average EV insurance premium in 2023 was 81% higher than the standard motor vehicle insurance. Likewise, in the UK, the average premium for EVs nearly doubled for ICE vehicles, reaching £1,344 (US$1,700) at the end of 2023.
Collaboration is Key
Addressing these challenges may require a deeper level of cooperation between insurers and EV manufacturers. Swiss Re has suggested that by leveraging their respective expertise—insurers’ claims experience and carmakers’ vehicle data—both entities can innovate by providing better coverage and service solutions. This could involve incorporating driving behavior data and providing tailored repair and maintenance packages. This type of cooperation will be critical to the future of EV insurance, allowing the industry to adapt and innovate in line with the rapid advancement of electric vehicle technology.
