By Andrew Ballard, product principal, LexisNexis Risk Solutions UK&I
In an automotive sector whose timeline is just over 100 years’ old, BEVs represent the blink of an eye. That’s why there’s plenty still to understand about risk assessment, underwriting and claims surrounding BEVs. The insurance sector is, however, learning quickly.
The importance of risk assessment
Understanding the differences in risk and claims costs between BEVs and Internal Combustion Engine (ICE) vehicles, is clearly vital yet, as long as BEVs remain the minority on UK roads, insurance providers will have less experience of assessing risk and setting premiums for them.
Starting with claims costs, research by Innovate UK and Thatcham Research has found that BEV claims are already 25.5% more expensive than ICE vehicle equivalents and are taking 14% longer to repair. Contributing factors include availability of parts, high costs for battery and drivetrain items and more complex repair methods.
Looking at accident risk, there are different driving dynamics associated with BEVs compared to ICE vehicles. While the differences between driving a petrol and diesel are negligible, drivers switching to BEV face increased power and torque, rapid acceleration, and heavier weight - increased momentum. The characteristics of brake regeneration can also cause the vehicle to behave differently, and drivers need to adjust to this. It may not be a surprise to learn that in studies undertaken by LexisNexis Risk Solutions in the U.S., when vehicle owners switch from ICE cars to new electric cars vs. to new ICE cars, the frequency of insurance claims rises by 14.3% while the severity of claims, or the amount that must be paid out when there is a claim, increases 14.5%.
Keeping pace with emerging technology
Like any innovative technology, early adopters are reaping significant rewards, but also facing the teething problems that can come with fledgling technology. As new BEV makes and models emerge, one of these downsides has been the higher cost of insurance.
However, lessons are being learnt from markets such as China where BEVs now make up 31% of the car parc and the U.S., enabling data solutions providers such as ourselves to develop new data sets at pace to help tackle this issue and make BEV insurance more personalised. One development being explored is more insight on past vehicle experience. This could mean, for example, if a proposer has previous BEV driving experience and thus familiar with the characteristics, the premium might be lower.
Collaboration is key
Reducing the cost of BEV insurance also requires collaboration. Many BEVs have sophisticated technology and safety systems that need specialist knowledge or equipment to repair. Of course, new technology brings with it a level of complexity and uncertainty that repairers need time to adapt to. If the automotive sector works together, staff training and equipment needed will become more quickly established. Think back to Advanced Driver Assistance Systems (ADAS), where not long ago, repairers needed to repair the vehicle and then send it to a franchised dealer for calibration. Many now have this equipment in house or can call upon specialist services to help get the work done faster and more economically.
In fact, ADAS is incredibly relevant to risk-based pricing on BEVs. Vehicle Research Data (VRD) shows that BEVs can have 20-30% more ADAS features, than the same or comparable Internal Combustion Engine (ICE ) vehicle. This data is critical to a better understanding of the levels of driver risks and claims cost associated with different BEVs.
By pricing to such different risk levels, insurance providers can use lower rates to attract better EV risks and higher rates to avoid loss on worse EV risks. This approach might in-turn encourage BEV drivers to practice safer driving behaviours to lower their risk levels and improve the road safety for all.
Leading the charge on battery repair
Perhaps the biggest issue facing the repair market are the challenges of battery diagnosis, repair and recycling. As well as having the right repairers and equipment, it is important for diagnostics and repair methods to be publicly available. Thatcham Research is leading the charge here, working with BEV manufacturers to help progress repair methods and training.
Meanwhile data solutions are being developed to increase the knowledge pool surrounding battery health. Indeed, LexisNexis Risk Solutions is working hard to gather actionable data, identifying specific details on EVs in areas such as battery type and drivetrain. By investigating data variables at a granular level, the ambition is to get detailed data surfaced earlier, for example, knowing at point of quote, whether a specific battery could be repaired in the event of an accident.
Looking at the overall journey of the BEV market, it is barely off the driveway, but could be cruising down the motorway very soon, as collaboration increases and knowledge surrounding the vehicles and their risks grows. Data on the vehicle and the driver will continue to advance and evolve to tell insurance providers more about the risk of a specific vehicle to support fair and accurate premiums. In this way, we can help ensure the cost of insurance is not a barrier to BEV adoption. Whether new ICE cars stop being sold in 2030 or 2035, there is no time to lose.
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