Why EV Insurance is Priced Differently?

Electric vehicles have become a top choice for urban commuters today. From cost-effectiveness to environmental friendliness, these EVs offer multiple benefits. However, a key area that most businesses struggle with is the insurance premiums.

The car insurance premiums for electric vehicles are generally higher than those for conventional vehicles. Owning an electric vehicle is a feasible option when fuel prices are at an all-time high. However, affordability is also an important factor to consider.

This blog explains in detail why EV insurance is priced differently.

Is EV Insurance Pricing Different in India?

Whether you get a third party car insurance or regular insurance for your vehicle, you'll notice the difference between regular vehicles and EVs. Usually, the electric vehicle insurance is higher.

Various factors have affected the premium. This includes:
1. Claim History: Insurers will assess your claim history for the electric car insurance. If you filed any previous claim on your insurance, the accumulated No Claim Bonus will be lost.
2. Battery Cost: The battery is one of the most expensive components of the electric vehicle. This battery cost itself increases the Insured Declared Value (IDV) of the vehicle, which in turn increases the premium.
3. Technology: Your regular vehicle doesn't have advanced technology. Therefore, the repair and replacement costs are low. However, the modern-day electric vehicle comes equipped with sensors, advanced systems, and electronics, which have high replacement costs. Thus, insurance is also high.
4. Repair Network: Not every repair garage has expertise in electric vehicle repair. These vehicles usually require specialised technologies, such as liquid-cooled batteries, which must be serviced at authorised service centres. The increase in labour and repair costs also raises the premium.

Why Is Electric Car Insurance Priced Differently?

Electric vehicles aren't built like your traditional vehicles. These vehicles rely mostly on integrated electronics and large battery packs. All these modern components have a significant impact on the premium.

Here are some of the key reasons why electric car insurance is priced differently:

1. High Maintenance

There's no doubt that electric cars are expensive, and so is their maintenance. The complex, costly components make these electric vehicles very high-maintenance. Repairing an EV requires an expert who understands the damaged parts and how to fix them.

Although the popularity of electric cars in India is growing, there are still very few mechanics who can properly repair them. Most mechanics are familiar with traditional cars.

With the limited availability of mechanics, the cost of repairing or servicing electric vehicles is high. Thus, the cost of comprehensive insurance for electric cars will be higher.

2. Repair Costs Are Different

The cost of repairing an electric car is very different from that of a traditional car. Electric vehicles rely mostly on integrated electronics and battery packs rather than moving parts.

If something goes wrong, repairs can be extremely complex. That's when insurance comes into place. If there's no insurance, you'll have to pay for these from your pocket.

Battery packs are very expensive. Even if you have to fix minor damage, assessing and repairing batteries can be expensive. The insurers will have to replace the larger sections of the battery, which will increase repair costs.

3. Longer Repair Timelines and Hidden Claim Costs

Comprehensive insurance for electric vehicles usually costs more due to the longer repair timeline. The insurance costs are also driven by factors such as rental reimbursement, storage, inspection time, logistics, and more.

With so many components involved, repairing damage in electric vehicles takes longer than in regular vehicles. Repairing specialised parts requires experienced or knowledgeable people. Even today, such experienced technicians are really scarce, hard to find.

Since electric vehicles are a relatively new technology, there may be hidden costs. The gap in repair costs between a regular car and an electric car may be small, but it affects thousands of claims. The severity of damage also leads to longer cycle times.

4. Insurers Have Less Historical Data on EVs

A key reason EV insurance premiums are priced differently is due to the limited availability of historical data. The insurers have a detailed history for traditional vehicles. Insurers tend to price premiums based on uncertainty because of a shorter history.

These insurance companies do not have long-term exposure to the operation of electric vehicles. Therefore, companies are particularly mindful of underwriting policy terms and conditions. Extra focus is placed on repair behaviour, total-loss rates, and battery degradation.

The insurance companies identify battery-related risks and insufficient actuarial data as their biggest challenges. Therefore, the gap in premiums isn't only due to current repair bills, but also because the involved risk model is also improving.

To learn more about what increases the premium costs, read our blog, Factors Influencing Insurance Premiums of Electric Cars.

The Third Party Insurance Discount on Electric Vehicles

The IRDAI introduced third party car insurance for electric vehicles at a 15% discount compared to general car rates. This move was taken to ensure progress towards a sustainable environment.

Should You Include Any Add-ons with Your EV Insurance?

When you're getting comprehensive insurance for your electric vehicle, make sure to include add-ons. These add-ons play an important role in protecting your vehicle's battery. Hence, you can stay protected against costly, unwanted repairs in the future.

**Some of the key add-ons for your EV insurance are as follows:

1. Battery Cover: The standard insurance policy will only cover accidents. However, with a battery cover, you can protect your battery from consequential damage. This will also protect you financially if a power surge from a charger damages the battery.
   2. Zero Depreciation: Even though it's an electric vehicle, zero depreciation is a key factor to consider. This is one of the most critical things to have for your vehicle, or you'll have to pay a significant amount in case of replacement for batteries and plastic parts, in accordance with policy wordings.
   3. Return to Invoice: EVs are no less than our smartphones, evolving rapidly. However, with rapid changes, resale value can also decline. With the RTI add-on, you can be assured that you'll receive the full purchase price if the car is beyond repair or stolen, not just its depreciated value.

What if you file a claim on your electric vehicle insurance?

If you raise/file a claim for your electric vehicle insurance, you will lose the accumulated No Claim Bonus (NCB) benefits. If the repair is affordable, it is advisable to pay out of pocket rather than file a claim. This saves the NCB and helps you get a discount during renewal.

In the event of further advancements, will the EV insurance premium decrease?

There is a chance that EV insurance premiums will decrease in the future, driven by the growth of telematics, better product design, and so on. Considering the industry is still in a transition phase, many changes are yet to occur. With advancements, future premiums may be more competitive and targeted.

The underlying economics play a key role in the higher car insurance costs for electric cars compared to traditional cars. The complexities and less mature risk environment have a significant impact on pricing, leading to higher prices. In the future, the premium prices will be refined, unlike the complex structure today.

FAQs

1. Is EV insurance the same as conventional vehicle insurance?

No, EV insurance isn't the same as conventional car insurance. Usually, EV insurance is more expensive than regular car insurance.

2. Do electric vehicles need specialised coverage?

Yes, electric vehicles need specialised insurance coverage. These additional components, such as range anxiety coverage or EV charger coverage, often increase premiums.

3. Do electric vehicles have a higher risk profile?

Compared with electric vehicles, internal combustion engines have a higher risk profile. So, even if you're buying comprehensive insurance, you'll have to pay a higher premium for your EV due to uncertainty and its weight/performance.

**Disclaimer: ** The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.