The Rise of Electric Vehicles and the Insurance Landscape
Electric vehicles (EVs) are experiencing a period of rapid expansion. The International Energy Agency (IEA) projects an average annual growth rate of 30% for EV sales through 2030. This growth translates into a significant market for insurers. Swiss Re estimates the global market size will surpass $200 billion, a substantial increase from $51 billion in 2022. Furthermore, by 2035, EVs are expected to constitute half of all new car sales worldwide, with an estimated 73 million units projected to be sold by 2040.
Global EV Adoption Rates
In 2023, nearly 14 million EVs were sold globally, marking a 35% increase from the previous year, and they now account for 18% of all car sales. However, adoption rates vary significantly across regions. For example, EVs comprise about 10% of all car sales in the United States, 38% in China, and an average of 22% in the European Union. Nordic countries show even greater adoption, with EV sales exceeding 50%.
Opportunities and Challenges for Insurers
The explosive growth in EV sales has fueled a corresponding increase in the EV insurance market. Industry studies anticipate double-digit annual growth rates for this market up to 2030. However, this expanding market also poses several challenges for insurance providers. Higher accident rates and the increased costs of repairs are affecting the profitability of underwriting, thus compelling increased cooperation between car manufacturers and insurers.
Emerging Risks and Repair Costs
EVs introduce new driving behaviors, vehicle risks, and repair complexities. One factor contributing to higher accident rates is the quick acceleration of EVs from a standstill compared to gasoline-powered vehicles. In China, accident rates involving EVs are almost double those of internal combustion engine (ICE) vehicles partly because of the high percentage of EVs in commercial use.
Repair expenses for EVs are also substantially higher than for ICE vehicles. A 2022 U.S. study noted that EV repair costs were, on average, 26.6% higher. Data from Germany and the U.K. reveal a similar trend, with EV repair costs 30% to 35% higher. These increased costs stem from the complex technology in EVs, including digital sensors, laser/radar systems, and advanced software, which require more labor-intensive diagnostics and repairs.
Addressing the Challenges
To support sales and effectively manage these risks, some EV manufacturers are either obtaining their own insurance licenses or forming partnerships with established insurance companies. Due to the new risks and repair costs, EV insurance premiums tend to be higher. In China, the average EV insurance premium in 2023 was 81% higher than for standard motor vehicles. Similarly, the average premium for EVs in the U.K. nearly doubled compared to ICE cars, reaching £1,344 (US$1,700) at the close of 2023.
Addressing these challenges might involve deeper collaboration between insurers and EV manufacturers. By combining their respective expertise—insurers’ claims data and automakers’ vehicle data—both parties can innovate to provide better coverage and service solutions, as Swiss Re emphasized, potentially integrating driving behavior data and offering tailored repair and maintenance packages.
