Navigating the EV landscape for Insurers: Data innovation and beyond

Authored by Cristian Sidoti. The author writes in his personal capacity, his opinion is solely his own, and he used only public data.

As an insurance professional with a keen interest in digital and data innovations, I have been closely following the growing adoption of electric vehicles (EVs) and the challenges it presents to the insurance industry. I have been particularly fascinated by the way insurers are leveraging data and technology to adapt their underwriting practices and risk assessments to accommodate the unique characteristics of EVs.

In recent years, there has been a big increase in the number of people buying EVs. This surge is driven by environmental concerns, technological advancements, and government incentives. EVs are quickly becoming more popular and could revolutionize the way we drive.

This shift presents a challenge for the insurance industry. Traditional underwriting practices and risk assessments need to be re-evaluated to accommodate the unique characteristics of EVs. Unlike conventional gasoline-powered vehicles, EVs have different risk profiles that require insurers to adapt their pricing and underwriting policies.

Statistics and Forecasts

• The global EV market is projected to reach USD 823.5 billion by 2027, representing a compound annual growth rate (CAGR) of 31.8%;
• This rapid growth is driving an increase in EV insurance premiums, which are expected to reach USD 15.4 billion by 2027;
• In 2021, there were over 10.2 million EVs in circulation worldwide, representing a 73% increase from 2020;
• This growth is being fueled by the decreasing average price of an EV, which has fallen by 45% since 2015;
• Governments around the world are supporting EV adoption with tax incentives, subsidies, and infrastructure development programs, further fueling the growth of the EV market and the insurance industry.

The impact of global mobility trends

The COVID-19 pandemic has accelerated the shift away from private car ownership and towards shared mobility and public transportation. This trend is driven by several factors, including:

• Growing awareness of health risks associated with private car ownership: the pandemic has heightened concerns about the potential spread of COVID-19 through shared surfaces and enclosed spaces, leading people to prefer alternative modes of transportation;
• Urbanization and traffic congestion: urban areas are becoming increasingly congested, making personal car travel more time-consuming and frustrating. Shared mobility and public transportation offer more efficient and convenient options for shorter trips;
• Development of alternative mobility solutions: the rise of ride-hailing services, scooters, and other shared mobility options has made it easier and more appealing to forgo personal car ownership. These services provide on-demand transportation that can be tailored to individual needs and schedules.

As a result of these trends, the average number of miles or kilometers traveled per person through personal cars has been declining in recent years. According to a recent report by McKinsey & Company, the number of miles traveled per person in shared mobility options is expected to increase by 105% between 2020 and 2030.

The shift in mobility patterns is having a direct impact on the EV market in some cases. For instance, some ride-hailing companies are starting to incorporate EVs into their fleets, particularly for longer (nut still urban) trips or when there is a shortage of traditional vehicles. This is helping to increase the visibility of EVs and demonstrate their suitability for a wider range of applications.

Overall, the shift towards shared mobility and public transportation is creating a more favorable environment for the EV market.

Insurers adapt to the EV landscape

Insurers need to develop specialized risk assessment models for EVs, considering factors like battery degradation or , charging infrastructure, and range anxiety (ndr. fear or concern that an electric vehicle's battery will run out of power before the driver can reach their destination or a convenient charging station).

In addition to battery degradation, insurers also need to consider the concept of battery criticality. Some EV manufacturers require the entire battery to be replaced after a crash, even if the battery itself is not directly damaged.

This is due to the possibility of internal damage or the need to recalibrate the battery system after a collision. This requirement can significantly increase the cost of repairs and claims, which needs to be factored into insurers' pricing models.

Insurers should/ could also collaborate with technology providers to develop connected solutions for tracking EV usage patterns and providing real-time vehicle health data.

In this changing and growing market, insurers can use a variety of strategies/ levers to succeed:

Data

Tapping into a wealth of data to gain a deeper understanding of the unique risks associated with EVs. Insurers are collecting and analyzing data from a variety of sources, including:

(1) Internal data: information from own policyholders, such as usage patterns, accident histories, and repair data. This data can provide valuable insights into the driving habits, collision history, and maintenance patterns of EV owners;

(2) External data: data from a wide range of sources, beyond traditional telematics providers. It encompasses data such as:

• Fleet/ manufacturer data: data from EV fleets/ OEM can provide valuable insights into the usage patterns, maintenance needs, and potential risk factors for different EV models;
• Public charging station data: real-time data from public charging stations can reveal usage trends, identifying areas with high EV traffic and potential areas of congestion or potential charging issues;
• EV market data: market data openly available to track EV adoption trends, sales figures, and average mileage to understand the evolving landscape and its impact on EV risk profiles;
• Government data and regulations: insights into government policies, incentives, and regulations related to EVs can help insurers assess the impact on EV ownership and usage, potentially influencing risk assessments.

By analyzing this data, Insurers can identify patterns and trends that can help them assess the risk profiles of EV owners. For example, they can determine which EV models have higher accident rates or which owners have more frequent claims for battery issues.

Tech & Expertise

Insurers are also partnering with EV experts and technicians to gain a better understanding of the complex technology behind these vehicles.

This knowledge is crucial for accurately assessing the risks associated with battery degradation, charging infrastructure, and emerging safety features.

For example, insurers need to understand how different charging habits can impact battery health and how to price coverage for battery replacement or repair.

Unlike traditional gasoline-powered cars, EVs rely on a large lithium-ion battery to power the motor. This battery is a critical component of the EV's powertrain, and its proper management is essential for ensuring both performance and longevity. Battery management involves a range of tasks, including:

• Monitoring battery health: checking the battery's voltage, current, temperature, and state of charge. This information is used to identify potential problems early on, such as overcharging, undercharging, or excessive heat;
• Optimizing charging and discharging: ensuring that the battery is charged and discharged within safe limits, which helps to prevent premature degradation. It also involves managing charging cycles to minimize wear and tear on the battery;
• Addressing battery degradation: over time, all batteries degrade. This means that they lose their ability to hold a charge as effectively. Battery management systems can help to slow down this process by optimizing charging and discharging cycles.

Battery management is a relatively new concept in the automotive industry, and it is something that traditional car manufacturers are still learning about. This is because the battery is a complex system that is sensitive to a variety of factors, including temperature, charging speed, and driving patterns.

For Insurers, understanding battery management is important for several reasons:

• Battery degradation can lead to higher repair costs: when a battery becomes degraded, it may need to be replaced or repaired. This can be a costly expense for EV owners, and insurers need to factor this into their pricing models;
• Battery health can affect resale value: a car with a healthy battery will have a higher resale value than a car with a degraded battery. Insurers can use this information to assess the risk of a claim related to battery degradation.
• Battery safety is a growing concern: as EVs become more popular, the risk of battery fires is also increasing. Insurers need to be aware of this risk and factor it into their pricing models.

By understanding battery management, insurers can better assess the risks associated with EVs and develop appropriate pricing models for EV insurance policies.

Risk engineering/ modelling for EV

Insurers are developing risk-based pricing models that take into account the unique characteristics of EVs. This means that premiums will be based on factors such as battery age, mileage, charging habits, and the type of EV model being insured. This will help to ensure that premiums are more equitable and reflective of the actual risk profile of each EV owner.

Traditional risk assessment models for gasoline-powered vehicles typically consider factors such as:

• Driver demographics: age, gender, driving experience, and accident history;
• Vehicle characteristics: make, model, year, mileage, and safety features (such as ADAS);
• Location: driving environment, accident rates, and crime rates;
• Usage patterns: annual mileage, driving habits, and others.

These factors provide a baseline understanding of the risk profile of a driver and the vehicle. However, when it comes to EVs, additional factors need to be considered to accurately assess risk.

To accurately assess the risks associated with EVs, insurers are incorporating the following factors into their risk assessment models:

• Battery age: batteries degrade over time, reducing their ability to hold a charge. Older batteries are more likely to experience premature degradation, increasing the risk of battery-related claims;
• Mileage: high mileage can accelerate battery degradation, leading to potential claims for battery replacement or repair. Insurers may consider mileage as a factor in pricing premiums;
• Charging habits: improper charging practices, such as using the wrong charger or exceeding the maximum charging rate, can damage the battery. Insurers may consider charging habits in their risk assessment models;
• EV model: different EV models have varying battery technologies, charging capacities, and driving ranges. Insurers may consider the specific EV model when pricing premiums to account for potential differences in risk profiles.

Coverage expansion

To cater to the unique needs and concerns of EV owners, Insurers are expanding their coverage offerings to provide comprehensive protection against potential risks and expenses. These expanded coverage options could include:

Battery degradation coverage:

Battery degradation is a natural process that occurs over time in all lithium-ion batteries, reducing their ability to hold a charge.

This can lead to increased range anxiety and potential repair costs. Insurers can offer battery degradation coverage to help EV owners manage these costs. This coverage typically pays for the replacement or repair of a degraded battery, providing peace of mind for EV owners.

Roadside assistance for charging issues:

EV owners may encounter charging-related issues, such as dead batteries or malfunctioning charging stations.

To address these challenges, insurers are offering roadside assistance specifically for EV charging issues.

This coverage can include provisions for jumpstarting a depleted battery, connecting to a public charging station, or towing the vehicle to a qualified repair center.

Insurance for associated home charging equipment:

As more EV owners install home charging stations, the risk of damage to these systems arises. To protect these investments, insurers are offering insurance coverage specifically for home charging equipment.

This coverage protects homeowners against damages caused by power surges, lightning strikes, or equipment malfunctions, ensuring that their charging infrastructure remains functional and safe.

Apart from core coverages, insurers can offer additional EV-specific coverage options to address specialized needs:

• Charging cable replacement coverage: this coverage replaces damaged or worn-out charging cables, which can be susceptible to wear and tear due to frequent use;
• Electrical surge protection: this coverage protects against electrical surges caused by power grid fluctuations or lightning strikes, which can damage EV components or disrupt charging operations;
• Charging station installation and removal: this coverage aids in the cost of installing or removing a home charging station, as well as any related permits or inspections;
• Battery health status certification: this service provides a comprehensive assessment of an EV battery's condition (in partnership with battery third-party providers), helping owners make informed decisions about maintenance and potential replacement, within an existing or new business insurance policy.

As the EV industry evolves, insurers are adapting their strategies to meet the unique needs of EV owners. By leveraging data, technology, and expertise, insurers can provide comprehensive protection and peace of mind to this growing market.