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Electric vehicles: The new claims frontier

The adoption of electric vehicles is one of the most prominent challenge the (re)insurance industry faces when it comes to motor insurance. On the claims side, new patterns and new types of claims have emerged, requiring insurers to adapt their operations and develop adequate responses. Munich Re’s Messrs Thibault Imbert and Damiano Massimi elaborate.

In recent years, e-mobility has achieved a breakthrough in many markets around the world. The question is no longer if electric vehicles (EVs) are coming and will replace traditional powertrains, traditionally referred as internal combustion engines (ICEs), but rather how they are coming and when they will take over the largest share of the global powertrain mix.

EVs bring new challenges

The (re)insurance industry plays a vital role in this transformation. However, the development of this new type of vehicle generates new challenges for the industry, particularly on the claims side where different patterns are emerging, alongside new types of claims.

A clear set of actions is required to face these challenges successfully: Understanding the fundamental differences between EVs and ICEs; highlighting the impact of these differences on the motor insurance landscape, particularly on the claims side and developing the appropriate response.

EV structurally differ from ICE

The differences between EVs and ICEs are often perceived as a simple difference in powertrains: The combustion engine used to move the car is replaced by an electric motor and the tank by a battery.

However, the differences are wider.

In ICEs, engines are generally easier to access and there is more experience in the market regarding how to repair/maintain them. Batteries tend to be more difficult to reach since they are usually tightly sealed to protect them from dust and humidity. Furthermore, batteries and electric motors are not being repaired yet in case of damage, since the OEM prescriptions indicate motors or batteries to be replaced. From a technology perspective, the battery is considered the most advanced part of an EV and it is generally assumed to represent 30% to 40% of the price of the car, especially for more affordable models.

Finally, the proportion of new materials and alloys is higher for EVs than for ICEs.

New claims patterns and types emerge

All these differences significantly impact the type of insurance claims which can occur. Analyzing EV-specific claims on the Chinese market highlighted a few aspects in this regard.

An increase in claims frequency, explained by the following:

EVs tend to have higher acceleration power than ICEs, as the battery has a sudden power delivery to the wheels, comparable to sports cars. Many drivers, not used to it, struggle to adapt.

Secondly, more and more governments are offering subsidies and incentives to support EVs adoption. Consumers can access bigger vehicles, compared to ICEs. Drivers not used to the new size, cause more dents and bumps.

Finally, a shift in the types of drivers has been identified for EVs in comparison with ICEs. EV owners tend to be younger and less experienced, with drivers between 18 and 30 overly represented as EV owners. Moreover, for households with more than one car, EVs are mainly aimed at urban usage by the youngest members of the household.

Severity of claims is higher for EVs.

More technology scattered throughout the car and new alloys make repair more complicated and spare parts more expensive.

The probability of a material damage claim leading to a total loss is higher for EVs. The high price of the battery, spare parts and labour may lead to repair costs exceeding vehicle value. If the battery suffers damage, it is usually replaced as most OEMs currently do not force the business for refurbished batteries within clear MOD and MTPL claims. This can lead to an increase in the overall costs.

Labour costs tend to be higher. Few garages are capable of correctly repairing EVs and interventions tend to be more complicated. The proportion of labour costs can amount to 30% of the total repair for EVs.

Given the complexity of repairs, claims are addressed to official dealers instead of independent shops much more frequently (e.g.: three-quarters of EV claims in China are directed to dealer garages).

Finally, some EV models have their charging port at the front. In case of a rear-end collision (quite common in city driving, where EVs are mostly used), the complexity and the cost of the repair increase.

Fire risk is also an important topic for insurers. EVs are often associated with a higher fire risk. Figures from the US market shows that only 25 out of 100,000 insured pure EVs (excluding any hybrid vehicle) did catch fire, compared to 1,530 for ICEs (1 to 60 ratio). However, when it comes to severity, EVs tend to burn longer, especially due to the battery, a big flammable source of energy. Completely extinguishing an EV fire and cooling down the battery requires more than 100,000 litres of water compared to 2,000-4000 litres for ICE).

In addition to the traditional motor claims (e.g. third-party liability, own damage) new risks, and therefore possible claims associated, have emerged.

Charging a car implies the use of dedicated cables and a private charging station (wall box) which can be damaged, stolen or a source of liability.

Running out of charge while driving is a risk identified as different from running out of petrol, be it on the frequency or severity aspect, impacting the use of the assistance coverage.

As many of these cars are connected, cyber claims also have to be considered, in case of an attack or of issues with the software.

Insurance must adapt to these changes

The fast adoption of EVs is having an impact on motor claims and requires (re)insurers to take a proactive approach, focused on three pillars:

  • Product: Developing an EV product offering, with dedicated wordings and coverages, to control and monitor EV risks with greater focus and transparency.

  • Pricing: Quantitatively assessing the riskiness of EV models and adapting the commercial rating structure to ensure an adequate level of premium in line with the underlying risk.

  • Claims: Detailed claims monitoring and development of dedicated partnerships, with both assistance providers and garage networks to ensure that claims costs are kept to an acceptable level.

Mr. Thibault Imbert is a senior insurance solutions manager and Mr. Damiano Massimi is an engagement manager with Munich Re.



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