Electric Vehicle Insurance: Why EVs Cost More to Insure

Key Takeaways:

• While the market for Electric and Hybrid Vehicles continues to grow, EV Insurance is more expensive than insurance of conventional gas-powered vehicles.
• From expensive battery power to higher repair and replacement costs, EVs and Hybrid vehicles cost more to insure even when driven in a safer manner than gas-powered vehicles.
• The good news—we have tips on ways to help you find affordable EV insurance.

Without a doubt, we are seeing more Electric Vehicles (EVs) and Hybrids on the road today. Accelerated by a powerful combination of motivations that transcend politics, we have seen the exponential growth in EV and Hybrid Vehicle adoption driven by support for sustainability efforts, impressive technological innovations, and substantial incentives and enticements from the government.

Millions of consumers choosing EVs and Hybrids have taken this once niche market and moved it clearly into the mainstream. Improved battery technology and expanding charging infrastructure have helped to drive the growth that is projected to reach 30 to 42 million light-duty vehicles and cars on U.S. roads by 2030.

However, baked into this booming market is the reality that EVs and Hybrid vehicles have insurance rates that surpass those for conventional, gas-powered vehicles. Many new car owners are surprised when they find that greener vehicles tend to sport a higher insurance price tag for reasons unique to the EV market.

What Makes EV Insurance Unique?

It comes down to technology. With conventional gas-powered vehicles that run on internal combustion engines, traditional insurance focuses on readily available and comparatively inexpensive repair and replacement costs, including for parts, labor, and more.

With EVs and Hybrid vehicles, there are distinct technological differences and associated risks that are inherent in electric cars and trucks. These differences include higher replacement and repair costs, expensive batteries, and hyper-specialized electronics and components. Additionally, EVs often require highly trained mechanics requiring certified skills and proprietary diagnostic tools.

Specifically, EVs require high-value battery systems and components that are prone to damage in collisions and are susceptible to thermal events and electrical failures. While absent within conventional auto insurance, EV insurance has to explicitly cover issues related to batteries, such as warranty coverage, recycling, and replacement costs.

Batteries—A Major Cost Driver in Electric Vehicle Insurance

For companies offering EV insurance, batteries bring a fundamental challenge not seen with conventional car insurance. Batteries are a major component of EV and Hybrid vehicles and, given their expense and complexity, drive significant differences in policy pricing and overall claims handling.

In addition, Lithium-ion batteries are extremely valuable, but hard to access—there is a growing problem with theft, where it is easier to steal the entire vehicle and extract the battery later, leaving the owner or insurance company with the responsibility to replace the entire vehicle.

Battery Replacement and Repair Brings High Costs

The battery systems in EVs are the most expensive and valuable component. These sophisticated battery packs can account for 30% to 50% of an EV’s total market value. This creates financial exposure for insurance companies that choose to offer EV insurance.

Ranging up to $20,000 and higher, battery repair and replacement costs are a significant factor that influences EV insurance premiums as insurance companies try to offset the high costs associated with EV and Hybrid vehicle coverage.

Limited Repair and Refurbishment Options for EV Batteries

Compounding the dilemma for insurance companies, EVs and Hybrids require Lithium-ion batteries that have a limited ability to be repaired. These highly specialized batteries require singular diagnostic technology that can only be found at exclusive manufacturer-endorsed service centers.

Unlike gas-powered engines, battery repair or refurbishment costs can quickly escalate after even a minor accident and lead to full battery replacement and even higher costs. Consequently, insurance companies have to consider these heightened risks as they develop their insurance rates and policies.

EVs and Total Loss Thresholds

Typically, insurance companies set total loss thresholds at around 70% to 80%, meaning if repair costs exceed that amount, it will be less expensive overall to just replace the vehicle. With the high cost of EV batteries, even minor incidents can quickly reach the insurance company’s total loss threshold and result in the vehicle being ‘totaled,’ creating additional upward pressure on EV insurance rates.

Supply Chain Challenges for EV and Hybrid Repairs

An additional factor that challenges insurance companies and pushes green insurance higher is the difficulty found in sourcing the EV batteries and components that impact EV repair costs.

Highly globalized supply chains drive the EV battery and component market with key raw materials, such as Lithium, Cobalt, and Nickel coming from the Democratic Republic of Congo, Indonesia, Australia, and South America, being shipped to manufacturing locations like China, South Korea, and Japan, and then distributed worldwide. These supply chains can be disrupted by complex factors, such as trade wars, pandemics, and severe weather events.

Beyond Batteries—Tech Complexity Leads to Higher Sticker Prices > Higher Premiums

People are attracted to the bells and whistles that advanced technology brings but they also have to expect that with added electronic components and computing capabilities there will come increases to their insurance rates.

EVs are powered by batteries, but also have a complex network or sensors, onboard computers, LiDAR, and much more, that impact both liability and comprehensive coverage costs. EV insurance rates have to build in the coverage costs for this highly complex technology since it will have to be repaired or replaced if an insured vehicle sustains damage.

Are EVs Safer?

Two factors generally inform insurance rates: 1) frequency of claims – how often do claims occur, and 2) severity of claims – how severe is the damage and what is the average cost per claim.

EVs have some significant differences when compared to gas-powered vehicles. EVs tend to have a much lower frequency in terms of accidents, however, the severity of claims is more substantial due to the added repair or replacement costs.

Early adopting EV drivers tend to display more cautious driving habits and are more likely to observe traffic laws. Overall, EV drivers are involved in fewer accidents compared to their gas-powered neighbors. However, as EVs become more popular (and more powerful), insurance companies are interested in seeing if these trends continue.

The Risks of Instant Torque and Rapid Acceleration

High performance EVs are partially responsible for the acceptance of electric cars and trucks—people love fast cars!

Brands like Tesla, Porsche, and Lucid boast advanced technology like instant torque and rapid acceleration which can take a vehicle from 0 to 60 in seconds. But does this highly appealing technology threaten to influence driving dynamics and increase the frequency and severity of accidents going into the future? And how do insurance companies monitor and assess these changes to behavior and outcomes?

Insurance Telematics, Data Collection, and Dynamic Pricing

More and more, insurance companies are using data-driven analytics and risk modeling that’s based specifically on EV performance and in-depth driver behavior analysis to get a better understanding of EV risks as the market evolves and more people adopt EV and Hybrid vehicles.

Insurance companies are using real-time driving data through advanced analytics, AI, telematics, and IoT sensors to derive a better understanding of EV performance and driver behavior. Through telematics, insurance companies can collect data on acceleration patterns, speeds, and braking to predict accident probability and severity.

With this shift to data-driven decision making, many companies are offering dynamic pricing as a forward-looking pricing process instead of the traditional static or retrospective model. Like the wearables being used today to monitor exercise and health-related issues, telematics uses similar technology to inform dynamic pricing algorithms so that drivers are rewarded for positive driving behaviors and reduced claims frequency.

Does Location Impact EV Insurance?

Yes, where you live can play a significant role in the pricing of EV insurance. Some states and local authorities offer incentives, tax credits, and more to those who choose to drive a car using green technology, including EVs and Hybrid vehicles. Targeted incentives like tax credits, reduced registration fees, and insurance discounts, can favorably impact your overall costs. For example:

• In California, Oregon, and New York, incentives include insurance policy discounts by insurers who align and support state governmental goals.
• Federal and state tax credits designed to offset the initial purchase of an EV can positively impact affordability.
• Colorado and Illinois provide rebates and credits to reduce the overall costs of operating an EV.
• Washington, Connecticut, and Maryland have each implemented a reduction in registration fees and certain ownership taxes for EVs that cushion the higher premiums for insurance coverage.

Policy-driven incentives have been proven to motivate consumers in their selection of a vehicle by making EV ownership a more attractive and sustainable option when compared to traditional gas-powered vehicles.

Urban vs Rural?

The charging infrastructure and reliable charging networks tend to be in large urban areas where people drive shorter distances and have ready access to charging opportunities at home and at commercial locations, like shopping areas, hotels, restaurants, hospitals, and businesses.

Rural EV owners are challenged by limited charging station options and the increased wear-and-tear on the batteries due to long driving distances and potentially rougher road conditions. Insurance companies closely monitor driving habits in both types of areas and make calculated assumptions about risk that impact insurance premiums.

Tips When Choosing Electric Vehicle Insurance

Like all auto insurance buyers, it makes good fiscal sense to review your EV insurance premium costs every year. Auto insurance continues to go up due to a number of factors, including:

• Rising repair costs for all types of vehicles
• Natural weather disasters are causing more vehicle damage and destruction
• Accident rates are increasing due to distracted driving and faster speed limits
• Increased crime and car theft
• Rising medical costs impact those injured in a car accident

Luckily, obtaining a competitive quote for your EV or Hybrid vehicle insurance is easy with an online marketplace, like einsurance.com. At einsurance.com, you can enter some simple demographic information and be linked to multiple insurance companies offering competitive prices on EV insurance.

Additional tips include:

• Choose Your EV Carefully
  • Avoid top-of-the-line luxury models that have expensive repair and replacement costs.
  • Opt for EVs with good safety ratings which may get a discount that lowers your premium.

• Bundle Policies
  • When you bundle your EV and home insurance, you will receive a multi-policy discount. If you have a boat, motorcycle, or RV, add that in too for additional savings.

• Increase Your Deductible
  • The higher your deductible, the lower your premium. If you premium is $0, see what the saving would be with it at $500 or $1,000 per occurrence.

• Limit Your Mileage
  • Low-mileage discounts are available for EVs that are only used for short distances.

• Use Telemetrics
  • Opt into a usage-based insurance (UBI) program where a telemetrics device can be easily installed in your car or used as an app on your phone to track your driving habits. Good habits can lead to lower rates.

• Install a Home Charging Station
  • Many insurance companies offer discounts for certified EV home charging stations that meet stringent safety standards.

• Ask About Green Savings
  • Ask your insurance company representative or agent about any EV-related or green discounts that you may be eligible for and that can lower your insurance costs.

• Drive Safety
  • Insurance companies love safe drivers and offer substantial discounts for people that maintain a safe driving record.

Navigating Insurance Premiums—Final Thoughts

As EV adoption continues to grow, electric vehicle insurance will continue to evolve if it’s to stay competitive. Battery costs, repair constraints, and escalating vehicle values make assessing and quantifying risk an ongoing challenge for insurance companies as EV makers and manufacturers continue to innovate and evolve—semi-autonomous cars anyone?

As a consumer, the challenge for you is to proactively research your options and find the most affordable EV insurance with the best discounts. Contact einsurance.com as a first step in managing your expenses for auto insurance.