Tricky aspects of insuring electric vehicles
【Summary】The insurance for electric vehicles (EVs) is still in its early stages, with insurers making incremental changes to policies. EV insurance is more expensive than insurance for internal combustion engine (ICE) vehicles due to the higher cost of the vehicle, maintenance, and labor charges. Comprehensive insurance is recommended, covering theft, fire, natural calamities, and third-party damage. Roadside assistance is crucial for EVs as they may run out of charging range.
Electric vehicles (EVs) are becoming increasingly common on Indian roads, with their sales accounting for 6% of all sales, up from 1% in 2019. The number of EV units sold has grown rapidly, from around 2 lakh units in 2019 to 13 lakh units in 2023. As the festive season approaches, we can expect to see even more electric vehicles on the road.
Insuring EVs is still a relatively new concept, and the industry is working on developing policies that address the unique aspects of these vehicles. Companies like HDFC Ergo, Bajaj Allianz, Royal Sundaram, and Magma HDI insurance offer EV-specific policies and add-ons to ensure the protection of these vehicles.
Compared to internal combustion engine (ICE) vehicles, the cost of an EV is mainly tied up in the battery and electric motor. The external charging setup is also crucial to insure. In addition to the usual factors considered in insurance, EV insurance also takes into account improper charging stations, voltage fluctuations, and other mishaps that can cause significant damage to the vehicle. Roadside assistance is particularly important for EVs, as they can easily find themselves out of charging-point range.
The cost of insuring an EV is typically higher than insuring an ICE vehicle. While there is a 15% discount on EV vehicle insurance, the overall cost is still higher due to the higher cost of the vehicle itself, as well as the higher replacement, maintenance, and labor costs associated with the infant EV industry. Additionally, the availability of repair and maintenance services for EVs may be limited.
A comprehensive insurance policy, which goes beyond the mandatory third-party insurance, is recommended for EV owners. This type of policy covers damage to the policyholder's vehicle due to theft, fire, or natural calamities, and also includes 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 policies. These features are particularly important for EVs due to the risks associated with the battery pack, manual charging, and electric motor.
Some insurance policies also include roadside assistance for breakdowns, energy-related issues, or accidents. As EVs have a limited range, the chances of getting stuck without a charging station nearby are higher. Insurer assistance in such situations can be crucial. EV insurance can provide breakdown services in select cities with comprehensive coverage.
In addition to regular add-ons, separate add-ons for battery covers and motor covers are available in most policies to address the critical component risks of EVs. The battery cover includes the charger and the battery itself, and covers mechanical and electrical breakdowns, which are the primary risks from a cost perspective for EV owners. However, insurance does not cover surges and voltage fluctuations if non-OEM supplied materials are used for charging or other purposes. Similar to an engine cover for ICE vehicles, motor cover protects against water ingress that could damage any component of the electric motor. Manufacturer faults, recalls, or damages that occur during the warranty period are also not covered by insurance.
While the current motor insurance product range is more suitable for ICE engines, there is a need for EV-specific insurance that takes into account the unique characteristics and risks associated with these vehicles, particularly in terms of the battery and performance.
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