In Depth: Developing the HNW market for electric vehicles

Electric vehicles are becoming more commonplace on the UK’s roads but their high price tags mean they’re more likely to be owned by high-net-worth individuals. And, while they tick the environmentally-friendly box, brokers are calling for more innovation and investment from insurers.

Government figures show there were around 450,000 battery electric vehicles in the UK in March 2022. While this is a big leap from the 8,000 registered in 2010, electric vehicles still only make up a very small part of the 37.6m cars and vans in the UK.

There are signs of rapid growth though, as Barry Knight, executive motor manager at Covéa Insurance, explains: “We’ve seen more electric vehicles already this year in both the high-net-worth and standard markets than for the whole of last year. This growth is positive but there are some challenges when it comes to insuring these vehicles.”

These challenges mean that motor insurers don’t always have an appetite to go electric and, where they do, premiums are higher than for conventional petrol or diesel vehicles. “It’s a very black or white yes or no from insurers,” says Richard Moxon, head of private client at Hayes Parsons. “There are concerns about the cost of repairs, especially around batteries.”

Some insurers won’t touch Teslas. There’s a risk that even a minor accident will mean the vehicle’s written off as no one has the technology to repair it. It’s challenging.”

Marcus Atkinson

These fears about cost have also been noted by Marcus Atkinson, divisional director in Howden’s private client business, especially when it comes to certain marques. “Some insurers won’t touch Teslas,” he says. “There’s a risk that even a minor accident will mean the vehicle’s written off as no one has the technology to repair it. It’s challenging.”

Higher costs

Several factors do mean that repairs are more expensive on electric vehicles. “These vehicles are more complex in construction,” says Kris Lewis, private client motor manager at Aston Lark. “They’ve got much more embedded technology than conventional petrol and diesel vehicles, which means that parts are expensive.”

Supply of parts can also be an issue. The war in Ukraine, where some parts are made, coupled with delays in Chinese ports has slowed supply, adding to claims costs.

There’s also a shortage of specialist repairers and the tools required to work on electric vehicles. For Knight, part of the issue is that the technology came before the repairer training. As an example, he points to the BMW i3, which was launched in 2013. “At that time, even some of the BMW garages couldn’t fix it,” he says. “It’s getting better now but it can still be difficult finding the right skills.”

Without the necessary tools and expertise, claims become lengthier and more expensive. This also has knock on effects on the cost of supplying a courtesy car.

More investment

Robbie Spear, head of business development at Novo, would like to see insurers investing in their repair networks to address this. “Network repairers often don’t have direct approvals for repairing electric vehicles,” he says. “They haven’t always had the training they need and, in some instances, are using methodologies that aren’t suitable. It’s part of the reason there’s a perception that electric vehicles are expensive to repair.”

Getting body shops up to level required will take investment. As an example, Spear points to a repair shop he recently visited which had invested in adapters to drain the battery in electric vehicles before any work can be undertaken. “They had a cabinet containing eight or nine of these adapters to enable them to work on different models,” he says. “It cost them around £15,000.”

As well as more investment in the repair networks, Atkinson would like to see greater collaboration with motor manufacturers. “Insurers are reliant on the manufacturers to supply parts but this isn’t always necessary,” he says. “Batteries can be repaired and it would be good if electric vehicles could be recycled more. Insurers must work with manufacturers to enable these vehicles to be repaired and insured for a realistic price.”

Lower risks

While insurers are concerned about repair costs, other aspects of electric vehicles’ risk profiles are much more attractive to underwriters. This is particularly the case with some of the safety technology on electric vehicles.

For example, data from Tesla shows that in Q4 of 2021, it recorded one crash for every 4.31m miles where Autopilot technology (autosteer and active safety features) was in use and one crash for every 1.59m miles where it wasn’t. In contrast, National Highway Traffic Safety Administration reported one crash every 484,000 miles in the US.

Electric vehicles can also have the edge when it comes to theft risk, with manufacturers incorporating design features that make them harder to steal. Tesla’s PIN to drive is an example of this, requiring motorists to input a four-digit pin to drive the vehicle.

Similarly, many new electric vehicles have multiple cameras to capture information around the vehicle. In the event of an accident, this data can be really valuable, helping to establish liability quickly and without the expense of a legal debate over who was at fault. “Insurers need to acknowledge and reward drivers of electric vehicles for these safety enhancements: it’s not just about higher repair costs,” says Spear. “Insurers have shoehorned these vehicles into standard policies. These have been fine for the last 50 years but they’re not right for electric vehicles.”

Different cover

Electric vehicles have different cover requirements too. Neil Grimes, claims director at Clear Insurance Management, says the need to charge these vehicles requires consideration from insurers. “Owners need to charge their vehicles but where does liability fall if someone trips over the charging cables in a car park or outside their home?” he says. “This needs to be clear on the policy.”

Owners need to charge their vehicles but where does liability fall if someone trips over the charging cables in a car park or outside their home? This needs to be clear on the policy.”

Neil Grimes

Covéa’s Knight is aware of the different needs in this market, refreshing his product every year to ensure it covers any emerging trends. “There are issues that are unique to electric vehicles,” he says. “Among the extras we’ve added are cover for electrical charging points and cables and emergency travel costs where a power cut at home has meant the vehicle hasn’t charged sufficiently.”

Future challenges

Advances in the electric vehicle space will create more issues for the insurance market to consider. One that is currently contributing to underwriter angst is the ability to upgrade an electric vehicle online or through an app, adding in features ranging from heated passenger seats through to autonomous driving capabilities.

Adding in these extra features, or turning off ‘irritating’ safety features, changes the value and risk profile of electric vehicles. “Insurers haven’t got their heads round this yet,” says Andrew Parker, partner at DAC Beachcroft. “Policies are structured around the Road Traffic Act, which was written in the late 1980s. Understandably, the Law Commission is calling for an update.”

The arrival of self-driving vehicles will hasten this and the insurance industry is already working with government to fully understand the implications of this. James Blackham, founder and CEO of By Miles, says it will require a rethink on the relationship insurers have with drivers. “Insurers will need to incentivise the driver to share data, especially when we move to autonomous driving where liability can switch between the driver and the manufacturer,” he adds. “It could also act as a push towards more usage-based insurance.”

However the product evolves, it’s clear that change will be needed to ensure cover suits future vehicle technology and risk. “We’re getting more requests from insurers to consider the risks associated with electric vehicles and look at the wordings,” says Parker. “There needs to be a more joined-up relationship between motorists, insurers and manufacturers, especially as we move towards autonomous vehicles.”