Electric vehicle (EV) sales in Australia are set to become a larger proportion of the motor market and developing strategies and underwriting approaches is a looming imperative for insurers, Finity says.
Local EV market penetration is still low but uptake is expected to grow strongly over the next decade amid a focus on reducing emissions and insurers will need to be take into account different risks and repair challenges compared with internal combustion engine (ICE) vehicles, Finity says.
“While currently most insurers are handling EVs through traditional pricing models and products, in the future many aspects of motor insurance will need to be adapted, including repair networks, pricing models and underwriting strategies,” Finity Principal Rade Musulin says.
“Given the significant lead time required to make changes in these practices, insurers should be preparing for this now.”
Finity, in an article released with its annual Optima report, says EVs require specialised expertise and equipment, replacement parts are more expensive and have longer lead times and there are competing influences affecting the potential cost of cover.
On the one hand, the use of advanced electronics and driver-assist technology should reduce claims frequency. But the vehicles are generally heavier due to the battery and associated components, have faster acceleration and are quieter, which could lead to more accidents involving pedestrians.
Finity says for a given speed of impact, the stopping distance and any damage are generally greater to both vehicles and pedestrians compared to internal combustion engine vehicle collisions.
“Drivers will need to become accustomed to EVs and some segments of the population such as younger drivers may see increased loss exposure due to greater acceleration and weight issues,” Mr Musulin says.
“Underwriters will have to closely monitor trends like this to adjust their pricing and product offerings.”
Mr Musulin says marketing factors will also come into play as many insurers may want to demonstrate social responsibility by offering attractive prices for EV cover, or to build market share of what will be a growing segment.
“There may be tension between higher cost pressures from repair or accident severity versus a desire to keep prices low for strategic reasons,” he says.
Claims cost pressures are likely to be higher for electric vehicles compared to conventional cars in the short-term, Finity says, but the gap will close as parts availability improves and as repairer capability and capacity challenges are resolved.
“The million-dollar question is where the differential will ultimately settle, and how long this transition will take,” Finity says in the article, titled Driving the future – Navigating the road ahead for insurers.
“How insurers choose to respond to this uncertainty in the short and longer term from a product, underwriting and pricing perspective is one to watch closely.”
The article is available here.