In a recent report, the reinsurance company Swiss Re forecasts a 30 percent annual growth in global electric vehicle (EV) sales until 2030, propelling the EV insurance market to surpass USD 200 billion by 2030, up from USD 51 billion in 2022.
This surge in the market is influenced by shifting EV driving patterns, repair expenses, and associated vehicle risks, posing challenges to the profitability of underwriting and suggesting a need for closer collaboration between car manufacturers and insurers.
Despite the collection of high premiums, insurers encountered combined ratios exceeding 100 percent for EV insurance in 2023, underscoring the importance of enhanced cooperation to achieve favourable outcomes for all stakeholders involved.
The global electric vehicle (EV) market is rapidly expanding, presenting a new risk landscape for the motor insurance sector. With approximately 14 million EVs sold worldwide in 2023, marking a 35 percent increase from the previous year and constituting 18 percent of total car sales, the shift towards EVs varies across regions.
While the US sees about 10 percent of all cars sold as EVs, China boasts 38 percent, and the EU averages 22 percent, with Nordic countries leading the pack at over 50 percent. Projections from the International Energy Agency (IEA) anticipate a continued 30 percent annual growth in EV sales from 2022 to 2030, with EVs forecasted to comprise half of all new car sales globally by 2035, reaching an estimated 73 million units sold in 2040.
Concurrently, the insurance market for EVs is expanding at a comparable pace, with studies projecting double-digit annual growth rates until 2030, culminating in a global market size exceeding USD 200 billion in 2030, up from USD 51 billion in 2022.
However, higher accident rates and repair costs present immediate underwriting challenges, potentially necessitating deeper collaboration between insurers and EV manufacturers to address emerging risks.
The rise of EVs introduces new risk elements for insurers, stemming from changes in driving behaviours, vehicle risks, and repair costs. EVs’ rapid acceleration compared to internal combustion engine (ICE) cars heightens the risk of accidents, with China reporting nearly double the accident rate for EVs compared to ICE vehicles.
Concerns also arise over charging infrastructure, battery swapping, and the accumulation of fire and explosion risks. Repair costs for EVs tend to be higher, with studies showing significant differentials ranging from 26.6 percent in the US to 35 percent in Germany and the UK.
Factors contributing to these higher costs include the placement of critical components, increased use of digital sensing and radar devices, and complexities in diagnostics and repairs due to extensive embedded software and integration of components.
To boost sales, EV manufacturers are entering the insurance market or partnering with insurers, but the increased risks and repair costs of EVs present challenges. In China, EV insurance premiums were 81 percent higher than standard motor insurance in 2023, with similar trends seen in Europe. UK EV insurance premiums doubled compared to ICE cars, reaching GBP 1344 (USD 1700) by 2023.
Despite these hikes, premiums may not cover underwriting losses, with Chinese EV insurers reporting combined ratios over 100 percent. Enhanced cooperation between insurers and EV producers could address these challenges, leveraging vehicle risk knowledge and driving data for insurance solutions tailored to drivers’ needs.
