Insurance challenges for electric vehicles
【Summary】The insurance options for electric vehicles (EVs) are still in their early stages, with incremental changes being made to address the unique aspects of EVs. Insuring an EV is typically more expensive than insuring an internal combustion engine (ICE) vehicle due to the higher cost of the vehicle and the need to cover the battery and electric motor.
Electric vehicles (EVs) have become increasingly common on Indian roads, with their sales accounting for 6% of all vehicle sales in 2023, compared to just 1% in 2019. The rapid growth of EVs is evident, with approximately 2 lakh units sold in 2019 and 13 lakh units sold so far in 2023. As the festive season approaches, we can expect to see even more electric vehicles on the road.
The insurance options for EVs are still in their early stages, and the industry is responding with incremental changes to policies to address the unique aspects of these vehicles. Companies like HDFC Ergo, Bajaj Allianz, Royal Sundaram, and Magma HDI insurance offer EV-specific policies and battery secure add-ons for private cars.
Compared to internal combustion engine (ICE) vehicles, the majority of the cost of an EV is in the battery and electric motor. The external charging setup is also crucial to insure. EV insurance looks for factors such as improper charging stations, voltage fluctuations, and other mishaps that can significantly damage the vehicle. Roadside assistance takes on a new meaning with EVs, as they can easily find themselves out of charging-point range.
The cost of insuring an EV is typically higher compared to an ICE vehicle. Although there is a 15% discount on EV vehicle insurance, the overall cost is still higher due to the higher cost of the vehicle, replacement costs, maintenance costs, and labor charges. Additionally, repairs and maintenance for EVs may be more challenging to execute.
A comprehensive or own damage insurance, in addition to the mandatory third-party insurance, is recommended for EV owners. This type of insurance covers damage to the policyholder's vehicle due to theft, fire, or natural calamities, as well as additional services like legal cover for third-party damage and personal accident covers. Roadside assistance and cashless claim processing may also be enhanced in comprehensive cover, considering the unique risks associated with EVs.
Some policies also include roadside assistance for breakdowns, energy issues, or accidents. As EVs have a range of 300 to 400 km on a well-charged long drive, the chances of getting stuck without a charging station nearby are high. Insurer assistance becomes crucial in such situations. EV insurance can provide breakdown services in select cities with comprehensive coverage.
In addition to regular add-ons, separate add-ons such as battery covers and motor covers address the critical component risks in most policies. The battery cover includes the charger and the battery, covering mechanical and electrical breakdowns, which are the primary risks from a cost perspective in an EV. However, insurance does not cover surges and voltage fluctuations if non-OEM supplied materials are used for charging or other purposes. Similarly, motor cover protects against water ingress and any damages during the manufacturer's warranty period, but it does not cover manufacturer faults, recalls, or damages outside the warranty period.
While the current motor insurance products are designed for ICE engines, there is a need for EV insurance tailored specifically for the unique differences and risks associated with battery and performance in EVs.
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