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Electric vehicles add to auto risks

EV fleet

Businesses converting to electric fleets following recent regulatory moves will likely see higher insurance costs initially — driven by increased values and repair costs — though they are expected to stabilize over time. 

President Joe Biden in August signed the Inflation Reduction Act, which includes various rebates and tax credits for more efficient energy applications, including electric vehicles. 

Also in August the California Air Resources Board approved a rule that will require all new passenger vehicles and light trucks sold in the state to be zero-emission by 2035. Other states are likely to follow suit, according to news reports.

Nearly 450,000 EVs were sold in the U.S. in 2021, up 83% from the previous year, according to a report by CCC Intelligent Solutions Inc. Hybrid EVs and plug-in hybrids saw 970,000 sales in 2021, an increase of 84%. Tesla Inc. continues to have the largest share of EV new registrations, but automakers such as Ford Motor Co. and General Motors Co. are also investing heavily in electrification.

It’s not yet clear how EV adoption will affect commercial auto coverage, said Michael Stankard, Detroit-based managing director of the manufacturing and automotive practice at Aon PLC.

From a liability perspective, EVs do not appear to be more, or less, hazardous than combustion engine vehicles, and the impact on premiums is likely neutral, Mr. Stankard said. “Typically, a powertrain of a vehicle doesn’t cause accidents, it’s human driving,” he said.

Premiums for physical damage coverages will likely be higher because of the cost of batteries in EVs, he said. That applies to both commercial and personal lines, though the cost will likely “level out in a couple of years,” he said.

Some EVs are more expensive to fix, due mainly to the cost of batteries and advanced technologies on board, which in turn may give rise to product liability risks, said David Carlson, U.S. automotive and manufacturing industry practice leader and U.S. and Canada climate and sustainability leader for Marsh LLC, who is based in Cleveland. 

“At some point in time, there will be a leveling out period when there are more of these cars on the road and more aftermarket parts,” Mr. Carlson said.

The various parts and components that go into EVs typically cost more than those of gas-powered vehicles, said Robert Hartwig, clinical associate professor and director, Risk and Uncertainty Management Center, at the University of South Carolina’s Darla Moore School of Business.

“The value of the vehicle itself is an important determinant of insurance costs, whether we’re talking about personal or commercial auto,” Mr. Hartwig said.

That means replacement vehicles will cost more, and repairs on EVs are also modestly higher, even though they have fewer moving parts than the equivalent gas-powered vehicle, he said.

Insurers will observe the claim, loss frequency and severity trends of EVs and will adjust rates accordingly, Mr. Hartwig said.

Darcy Johnson, Boise, Idaho-based senior underwriter at National Truck Underwriting Managers Inc., a unit of Amwins Group Inc., said the biggest concern with electric trucks is that they can be extremely heavy due to the added weight of batteries. 

“They’re going to be overweight before you even put loads on them. … The batteries are positioned right on the frames of the semis on both sides. They’re almost targets for smaller cars to hit,” Ms. Johnson said.

Because the batteries are the main source of power on the vehicles, the physical damage rates are going to be “extremely expensive” due to the cost of parts, she said.

While nearly all EVs come equipped with connected car technology and advanced driver assistance systems that have safety benefits, these add to costs, according to a July report by CCC Intelligent Solutions.

Its analysis found that EVs have higher average repair costs than their non-EV counterparts, said Susanna Gotsch, Chicago-based senior director and industry analyst at CCC.

Total cost of repairs averaged $4,041 for EVs vs. $3,191 for non-EV models among small non-luxury cars, CCC said in the report.

EVs also have longer repair times because repair productivity is lower, Ms. Gotsch said. 

“Anytime you introduce new technology into the collision repair industry — or any industry for that matter — it takes time to get those technicians up and running,” she said.

It’s more difficult to determine loss-related damage to EVs than to internal combustion engine vehicles, because the vehicle systems are more interconnected, said Ryan Mandell, Greenville, South Carolina-based director of claims performance at Mitchell International Inc., part of Enlyte Group LLC. 

When an EV is involved in a collision, it can cause internal damage that isn’t immediately evident, such as to the vehicle’s cooling system, which can add to the complexity, cost and time of repairs, he said.

Supply chain disruptions are also exacerbating the availability and costs of various materials needed to complete EV repairs, several experts said.

A major component of EVs is graphite, much of which is sourced from China, said Andy Blancher, director, commercial auto and emerging issues, at Verisk Analytics Inc. in Jersey City, New Jersey. “That can leave the EV industry uniquely exposed to supply chain disruptions, leaving insurers on the hook for inflated repair and replacement costs,” he said.

Technology generates exposures 

The growing rollout of electric vehicles across the United States will likely lead to improvements in efficiency and safety, but businesses converting to electric fleets still face emerging liability exposures in the short term.

Electric vehicles, including hybrids, present several vulnerabilities, said Andy Blancher, director, commercial auto and emerging issues, at Verisk Analytics Inc. in Jersey City, New Jersey.

High-voltage cables that run through EVs can present bodily injury risk to vehicle occupants being extracted following an accident and to first responders, such as firefighters, Mr. Blancher said.

The charging infrastructure required for EVs raises cybersecurity concerns with the potential for hacking of data at public charging stations, Mr. Blancher said.

Verisk plans to add a class to its general liability program with respect to electric vehicle charging stations next year.

EVs can also lead to ancillary risks that aren’t readily apparent, said David Carlson, Cleveland-based U.S. automotive and manufacturing industry practice leader and U.S. and Canada climate and sustainability leader for Marsh LLC.

If an EV is parked in a garage, does that become a property exposure if the vehicle’s battery catches fire, Mr. Carlson said. “I’ve had to field that question from more than one parking tower,” he said. 

How extreme weather can affect an electric truck’s range is another concern, given the lack of charging infrastructure across the country, said Darcy Johnson, Boise, Idaho-based senior underwriter at National Truck Underwriting Managers Inc., a unit of Amwins Group Inc.

“In extreme weather conditions pulling heavy loads, how is that battery going to hold, and can the truck get there on time?” Ms. Johnson said.