Electric vehicles create new challenges for insurers in 2023

The growing number of electric vehicles and hybrids bring new pressures for the authorities and the insurance industry.

2022 was the year in which electric vehicles (EV) and hybrids became a significant force on the UK’s roads. Based on data from the Society of Motor Manufacturers and Traders, this year was the first in which combined sales of EVs and hybrids accounted for over half of all new car sales. But ever-increasing numbers of EVs create challenges for both insurers and the country as a whole.

Stakeholders in the EV sector might well question the Chancellor’s decision to remove the exemption from excise duty of EVs from 2025. Considering that one of government’s key aims is move towards a more sustainable, carbon-neutral economy, the removal of this incentive to switch to an EV might seem a retrograde step. This is particularly pertinent when one considers that the sharp rise in electricity prices this year will have had a significant effect on the long-term cost/benefit of owning and running an EV.

From an insurance perspective, EVs are more technical and complex pieces of engineering than their combustion engine-based counterparts. The currently available infrastructure for repairs and servicing is fairly thin and owned primarily by EV manufacturers. This means insurers may be unable to use their own repair networks and benefit from the economies of scale, which could impact on the price of EV insurance.

The ability to repair the battery unit of EVs raises concerns, too. A significant proportion of units are built into the chassis, meaning even a minor collision could cause serious damage. Repairs may be impossible or come at a cost of tens of thousands of pounds, which may be uneconomic. Write-offs, therefore, could rise in frequency. And, where batteries can be replaced, disruptions to global supply chains mean delays in securing new parts, which further increases insurers’ costs. Options for recycling and reconditioning batteries are also currently very limited.

Another tricky issue is managing fire and liability risks associated with charging an EV. If, for example, an EV is charged in a home garage and fire breaks out, does the EV owner turn to her motor or home insurer to make a claim? The point needs to be resolved rapidly so that customers have clarity.

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