The rapid growth of battery electric vehicles should make personal lines and fleet brokers think carefully about how to adapt to this changing market, with both specialist products and services such as replacement vehicles in the event of a claim. Padraig Floyd speaks to intermediaries to find out what they are doing in this space; whether it is something they are preparing for, and how progressed they are in terms of thinking about an EV future.
The adoption of battery electric vehicles is growing rapidly. Worldwide sales volumes passed the three million mark for the first time in 2020. According to data from EV-volumes.com, China is leading the charge with 1.4 million sales, and Norway has the highest per capita sales at 2%.
The UK was the fifth biggest market, with a total of 181,000 EV sales, or 11.1% of all new registrations in December 2020, compared to 3.2% in 2019. This brought the number of EVs in the UK to more than 435,000, despite the impact of the Covid-19 pandemic. That figure will increase considerably in 2021 if the current global supply chain problems are not too disruptive.
Although 70% of the population has never driven an EV or hybrid vehicle, people embraced environmental issues during lockdown and have decided their next vehicle is likely to be electric or a hybrid. Research by AX shows that 51.9% will consider buying an EV within two years, largely for environmental reasons (83.7%). However, 70.5% believe they will save on fuel costs.
A seismic shift
Tim Hutton, managing director of the Lloyd Latchford Group, says the rise of EVs is “the biggest seismic shift in the motor market since the invention of the diesel car – and not all brokers are prepared for it.”
A key challenge has been finding capacity, he says, because many insurers remain nervous about EVs, are reticent to quote for them, and have restrictive criteria if they do quote often.
“A lot of insurers are only just starting to dip their toe in the waters of EV,” says Hutton. “In order to better understand the risk profile of these vehicles – in the retail and fleet space – insurers often start their process through direct channels before they are ready to offer a solution into brokers. That’s slowed brokers down and created a demand ‘gap’ with customers.”
Mathilda Nathan, VP, growth at Zego, acknowledges the concerns among traditional insurers and brokers, largely due to a lack of claims data, which makes it feel like “uncharted territory”. But those who are adaptable will be successful: “Insurance players that specialise in flexible products have a natural advantage here as they are used to being nimble and innovative when it comes to rolling out a range of policies. EVs are creating a range of changes to how and why people access vehicles, and this change in consumer demands is challenging the traditional models of insurance.”
New risks to add to the old
Despite markets like the UK experiencing rapid adoption of EVs, the obstacles to developing a better, more mature market mirror some of the risks brokers and insurers are trying to tackle. But some argue that a lack of data means the insurance industry faces several ‘new’ risks around these vehicles.
The need for infrastructure, and more home-based charging stations is one problem to be conquered. But charging itself can lead to other risks. In the workplace, more vehicles may be concentrated in a particular area. This may increase the fire risk, but also the impact on the EV fleet in the event of fire. This requires a business to review its business continuity plans should charging facilities be interrupted, or vehicles lost. If this happens at the employee’s address, the business could be liable for damage or loss to the employee’s home as well.
Liability insurance, to cover the trip hazard of charging cables across pedestrian footpaths and for the damage or theft of chargers, is also essential.
The repair of EVs is currently a specialist skill. Quite apart from the experience needed to inspect the new technology, special protocols must be in place to ensure batteries are safe. A damaged battery could be an accident waiting to happen. But it can also damage other components, resulting in their failure and a hefty bill.
The technology designed to prevent a battery fire – the pyro-fuse – contributes to the risks. It is an essential component, but expensive to repair and cuts the engine even at low impact speeds. And there isn’t yet sufficient data to know how likely or how often the fuse may trigger and render the car inoperable.
Mobility must also be considered. EV parts are harder to source, and faults take longer to identify. Customers may require an alternative vehicle, especially when it comes to fleets. Insurers must consider if they can provide one, if it should be electric, and how to compensate for things like congestion charges if it is not.
Driver behaviour is an important factor too. Even relatively simple EVs have a surprisingly responsive performance. Speed could be an issue if drivers are not coached in how to drive their vehicle. This also extends to management of the vehicle, including the basics, like journey planning to ensure there are charging opportunities if required, but also how to drive the car to maximise range.
Finally, cyber security is a new – but potentially catastrophic – risk for fleets. Operating EVs will increase the opportunity for criminals to exploit connectivity between corporate systems and employees’ home networks, with the EV as a conduit.
As the number of EV drivers increases, so do the different profiles and requirements. Every client is different and no one size fits all. Brokers need to understand the differences in the demands of EV drivers so they can clearly differentiate their products. “There has been such a rapid increase as the technology has taken huge leaps forward, and we are now beginning to see these changes,” says Kris Lewis, private client motor manager, Aston Lark.
“Brokers and insurers have also been able to adapt their marketing strategies accordingly, even creating new brands directed at EV drivers, promoting the positive economic aspects of ‘green’ driving.”
Hutton says the imminent boom provides brokers with opportunities to devise solutions for the insurers they work with.
“Some brokers are looking to establish unique packages and distribution channels that will enable insurers to learn more about electric vehicles in a single scheme, limiting their risk and improving their knowledge of things like claims type, frequency, and severity,” he says. “Since January, 98% of the vehicles we’ve covered have been hybrid or electric.
There is still some way to go to make EVs attractive from the point of view of insurance, says Zego’s Nathan.
For example, the delays sourcing parts for repairs have a knock-on effect on costs and consequently, premiums. “Under a traditional policy, where insuring an electric vehicle typically costs 20% more, consumers and fleets alike are at risk of paying excessive premiums should their electric vehicles require repairs,” she says.
Though there is a good – and steadily increasing – level of capacity for insuring electric vehicles, underwriters generally price electric fleet vehicles marginally higher than diesel or petrol vehicles,” says George Bryant, transportation director at Gallagher.
“This is because repair costs can be higher and, in some circumstances take longer,” says Bryant. So he works with fleet clients to implement risk management solutions that can be used on either individual electric vehicles or whole fleets. Tools such as driver behaviour technology are increasingly popular and can be very effective in helping to reduce claims, accidents and therefore premiums.”
Consumers have several concerns about EVs, with infrastructure at the top of the list. Zap-Map, the EV charging app, indicates there are only 32,700 charging connectors available in the UK.
The Office for Low Emission Vehicles had committed £20m to on-street residential projects for 2021. But that is small beer compared to the increased demand.
This has since been dwarfed by a £620m cash injection to support EV ownership as part of the UK government’s Net Zero Strategy. This will cover grants towards the cost of new electric vehicles. It will also improve the country’s charging infrastructure, focusing on roadside residential charging points. Funding such as this will begin to plug the current gaps and help to remove concerns.
Another key aspect of this fear focuses on range, but each new evolution of EV delivers greater range. Many vehicles, particularly in the middle, family-sized market now demonstrate the kind of range that will satisfy fleet managers’ proof of concept thresholds – and not just for deliveries and company representatives.
Life in the old dog yet
Though essential for the travelling salesman, company cars have been seen as an increasingly expensive and historic perk. However, they are likely to be a source of considerable growth for EV sales.
Recently launched fintech, Loveelectric, claims the use of salary sacrifice can halve the cost of leasing an EV.
It’s service – free to employers – offers a choice of 200 EVs. By using salary sacrifice, payments are deducted from gross income, saving tax and national insurance for the employee, and NI for the business.
Some brokers already offer cover for salary sacrifice drivers, which may increase the numbers of those accepting car benefits, who have previously taken the cash instead.
The devil is in the pricing
Some brokers and insurers have recognised the differences between – and developed brands directed at – EV drivers, says Lewis. “Products designed specifically for EVs are thin on the ground though. Instead, they have been incorporated into standard motor products,” he adds. “However, as more long-term data within claims, particularly around repair costs, is collected and analysed, more and more insurers will create EV-specific products and make them widely available to brokers.”
Not everyone agrees. Steve Beard, division head for Markerstudy Insurance Services, says: “We’ve been engaging with our partners to review current propositions, and it’s our belief that specific schemes are unnecessary.” He acknowledges a need to better understand the distinct demands and needs of EV and plug-in hybrids drivers though: “The most important thing when insuring any vehicle is that the repair network is capable of servicing the needs of the vehicle in the event of an incident.”
Marc Wanless, head of corporate motor at Aviva agrees that there are many similarities and that repair cost is a major risk: “An EV is still a vehicle with four wheels, operating on a UK road.”
Despite owning its own repair network, due to the complexity of modern car components – particularly in the case of some higher-spec EVs – Aviva has experienced year-on-year damage inflation and it remains one of the “biggest challenges”, he adds. As fleets become electrified, so the claims profile will change, largely due to the cost of repair.
“Customers are not always necessarily seeking policies for EVs with specific emission levels, says Mark Townsend, managing director of motor & home at BGL Insurance. “They see it as the same insurance and do not differentiate between the types of vehicles until they discover the risks. However, in the same way many car buyers might need reassurance when purchasing their first electric car, unsurprisingly, drivers want reassurance that the key differences and new elements with an emission-free vehicle are covered, such as their charging points, charging cables and batteries.”
Consumers may seek to be indemnified against risks to third parties from charger cables, for instance. However, insurers are going to want something in return and that is likely to be closer monitoring of driver behaviour.
“What will really start changing the underwriting and pricing process, is better data, such as telematics,” says Wanless. “We see very little telematics data fed into our pricing model because we struggle to get it from the telematics provider as they don’t really want to share it.”
This is likely to change. The cost of repair and the need for a different driving style for an EV will encourage great reapplication of telematics. And Aviva is already in exploring, with several MGAs, how to increase bandwidth for EV cover.
Don’t get left behind
“The EV evolution must happen quickly though, as new competition is one of the biggest risks brokers face,” continues BGL’s Townsend. “While progress is being made in the insurance market to meet the needs of the electric vehicle driver, brokers need to be mindful of the competitive threat from the likes of private contract hire deals, which may put motor manufacturers/dealers in a strong position to sell insurance,” he adds.
Obviously, car manufacturers want closer relationships with consumers to foster stronger links. Townsend is confident that brokers are well positioned to support customers, particularly as the price of EVs falls and the secondhand market evolves and normalises. “It is an area of the market that presents a huge opportunity for intermediaries,” he adds. “Although electric cars still only make up a small proportion of the total car market, the insurance industry needs to prepare and, importantly, invest now, to ensure that it will continue to meet the needs of this growing share of the driver population.”
Hutton of Lloyd Latchford Group agrees, and thinks that brokers and insurers must work together to collect data and map the impact of EVs on driving habits, risk and claims in order to create products for the future.
“Those who do that well – and first – will have a significant opportunity to grab market share in what’s going to be a brand-new marketplace,” he says.
One final influence that may reinforce disruption has been the impact of the recent fuel shortages. This affects how EV adopters are buying and using their vehicles, and they may require different coverage as a result.
“I expect more demand for lease insurance. Fast-changing EV technology means people are worried about depreciation and are less likely to buy,” concludes Hutton. “I also expect shorter or more flexible policies to meet demand for shorter-term leases, plus more pay-as-you-go options, as driving behaviour continues to change.”
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