With the growing popularity and adoption of electric vehicles (EVs), it’s essential for the owners of EVs to understand the intricacies of insuring these modern vehicles, especially with a comprehensive insurance cover that protects their investments and offers peace of mind.
THE RISE OF ELECTRIC VEHICLES: SALES AND PENETRATION
The global electric vehicle market has witnessed impressive growth, and is expected to grow with a compounded annual growth rate (CAGR) of 21.7 per cent until 2030. In India, the EV industry has seen even more significant strides and is projected to expand at a remarkable CAGR of 36 per cent.
NITI Aayog, the government think tank, has set ambitious goals for EV sales penetration, aiming for 70 per cent in commercial vehicles, 30 per cent in passenger cars, 40 per cent in buses, and a whopping 80 per cent in two-wheelers and three-wheelers by 2030, according to a recent presentation by Digit Insurance.
“As of May 2023, electric two-wheelers (TW) have accounted for 7.14 per cent of the market share, a notable increase from 3.11 per cent in the previous year. OLA Electric continues to lead in this segment, followed by TVS Motor. Electric three-wheelers (3W) have also shown significant growth, with passenger 3W accounting for around 55-60 per cent of the market share in May 2023. Mahindra & Mahindra (M&M) remains a top original equipment manufacturer (OEM) in this category,” says the Digit Insurance presentation.
DIFFERENCE BETWEEN EVs AND ICE VEHICLES
Understanding the distinctions between EVs and traditional internal combustion engine (ICE) vehicles is crucial for assessing the insurance risk of EVs.
EVs use electricity stored in lithium-ion batteries as their energy source, while ICE vehicles rely on gasoline or diesel as fuel. The transmission systems in EVs are much simpler, requiring only a single-speed transmission, unlike ICE vehicles, which require multiple-speed transmissions for optimum efficiency.
Weight distribution, range, and refilling times are also different between the two. EVs have slightly heavier curb weights due to their batteries, but contribute less to noise and air pollution. While EVs currently have a range limitation of around 100 miles per charge, advancements in battery technology are continuously improving this aspect.
TYPES OF EVs AND MAJOR CHALLENGES FOR EV INDUSTRY GROWTH
Electric vehicles come in two main types: pure electric vehicles that run solely on electricity, and hybrid vehicles that combine electricity with combustion fuel. The EV industry has witnessed remarkable growth, but it also faces several challenges.
Some of these are:
Initial Cost Of Ownership: EVs can be more expensive than ICE vehicles due to advanced technology and high-capacity batteries.
Lack Of Choice: There is limited availability of electric car models in India compared to ICE vehicles.
Lack Of Awareness: Consumers may not fully understand the potential cost savings and benefits of EV ownership.
Charging Infrastructure: Uneven electricity distribution and lack of dedicated EV charging provisions pose challenges to widespread EV adoption.
Service Centre And Repair Options: Specialised mechanics and trained personnel are required for EV repairs and maintenance.
Range Anxiety: There are concerns about limited range and the need for careful planning during long trips.
Battery Cost And Replacement: High battery costs contribute significantly to overall EV costs, along with concerns about battery replacement expenses after every four-five years.
GOVERNMENT’S EFFORTS IN PUSHING EVs AND INSURANCE IMPLICATIONS
To promote EV adoption, the government has set ambitious targets for EV penetration in private and commercial vehicles.
“They aim to achieve 30 per cent of private automobile sales, 70 per cent of commercial vehicle sales, and 80 per cent of two-wheeler and three-wheeler sales to be EVs by 2030. The government is supporting this transition through tax rebates, subsidies to producers, tax exemptions for buyers, and state-wise reduction of road tax,” according to the Digit Insurance presentation.
Insurance premiums for EVs are evaluated differently compared to ICE vehicles. Factors such as the cost of the vehicle, expensive components, battery life, and scarcity of mechanical experts impact the premiums. However, there are ways to protect against losses or reduce premiums, such as installing anti-theft devices and choosing voluntary deductibles.
INSURANCE CLAIMS FOR EVs Vs ICE VEHICLES
While the EV industry has been growing for a couple of years, stable trends in insurance claims are still evolving. However, some expected differences between EVs and ICE vehicles in terms of insurance claims include:
Higher Severity: Due to the expensive components and specialised repair requirements, the severity of claims for EVs is expected to be higher. As infrastructure improves, this trend may decrease.
Higher Total Loss: Accidental damages impacting the battery could lead to total loss claims, considering that batteries constitute a significant portion of the vehicle’s cost. Reparability of the battery or its placement can reduce this risk.
Battery Running Out Of Charge: EVs are more likely to require service assistance due to battery depletion. Incidence rates for two-wheel EVs are expected to be around 20 per cent.
Manufacturing Flaws: As the industry matures, manufacturing defects specific to certain makes may surface, leading to claims.
TP Frequency: Battery degradation over time may result in lower frequency for EVs compared to ICE vehicles in terms of third-party claims.
INSURANCE OFFERINGS FOR NEW EVs
Insurance companies offer coverage for new EVs, with variations based on commercial or private usage. Commercial usage typically includes a one-plus-one comprehensive policy covering one year of own damage and third-party coverage. Private usage policies may include one-plus-five for registered two-wheelers and one-plus-three for private cars.
Coverage details for EV insurance include accidental damage, theft, total loss, compulsory personal accident (CPA) cover for the owner-driver, and third-party coverage. Additional add-ons may be available based on the insurer.
As the future of transportation shifts towards electric vehicles, understanding the nuances of EV insurance becomes vital. While there are challenges to overcome, the government’s efforts, industry developments, and evolving insurance offerings are helping to pave the way for a robust EV insurance ecosystem. By staying informed and securing comprehensive insurance coverage, EV owners can enjoy their vehicles with confidence and contribute to a greener future of transportation.
