Why insurers should prepare for more electric vehicles
As automotive manufacturers increase efforts to unveil and promote new electric vehicle models, adoption has ramped up sharply. Electric vehicle sales have grown, accounting for roughly 4.6% of the new light-vehicle registrations in Q1 2022, which is up from 2.6% for the full year in 2021 and 1.5% for the full year in 2020. California currently leads the way, with electric vehicles accounting for nearly 15% of all light vehicle sales in the state in Q1 2022 and roughly 39% of electric vehicle sales nationwide.
However, new tax credits contained within the Inflation Reduction Act and plans by both New York and California to ban the sale of new gas-powered vehicles by 2035 will likely lead to additional states adopting similar regulations. The state-level legislation, coupled with new tax credits, might finally provide enough momentum to push electric vehicle adoption past the tipping point.
Automotive manufacturers are working to assess how a rapid increase in demand for electric vehicles will impact supply chains and manufacturing. While the proliferation of electric vehicles will certainly lead to dramatic changes for manufacturers, it will also have a tremendous impact across the entire ecosystem that supports properly insuring and repairing electric vehicles. As more electric vehicles are sold in the U.S., the insurance and collision repair industries will see a wider range within the claim and repair mix.
Electric vehicles are part of an increasingly complex number of registered vehicles that are on the road using advanced tech. For example, nearly all electric vehicles come equipped with connected car technology, advanced driver assistance systems (ADAS) and telematics features resulting in models with as many as 100 million lines of code, 70 computer systems, and 150 electronic sensors. Understanding this added complexity will be increasingly important from an underwriting perspective as more policyholders purchase these vehicles.
While these technologies come with benefits, they also come with additional costs. Recent data shows that electric vehicles that have sustained damage from a collision currently have a higher average repair cost and cycle time than their internal combustion engine counterparts. These repairs often include numerous scans and calibrations, requiring diagnostic capabilities to ensure these more intricate vehicles are repaired properly and thoroughly. Additionally, the G-forces sustained during an accident can cause a ‘concussion’ inside high-voltage batteries causing repairers to conduct pre-repair and post-repair inspections to monitor the battery cells and temperature to avoid the potential for fire.
Unfortunately, electric vehicles don’t have a lot of repairs that require a battery replacement. If there’s battery damage from a severe accident, the vehicle is most likely a total loss. Data also shows that electric vehicles have a higher percentage of returns to repair shops for additional work. Once repairers begin seeing more electric vehicle repairs, greater efficiencies may help bring electric vehicle repair costs more in line with non-electric vehicles, but that won’t happen overnight.
The expected surge in electric vehicle interest could create additional pressure on the industry in terms of rising costs and longer cycle times, dynamics that lead to lower consumer satisfaction with the claims experience. While insuring and repairing electric vehicles is not inherently harder, you need the right digital and diagnostic tools combined with proper training to manage the added complexity. Insurance carriers, collision repairs and part suppliers must decide when it makes sense to invest the necessary capital to support electric vehicles based on their individual markets and how quickly electric vehicle registrations are growing. As vehicle technology evolves and becomes ever more complex, electric vehicles are essentially the poster child for future demands on the insurance and repair industry.
