Data charges ahead to shape the future of electric vehicle insurance

Andrew Ballard, product principal, LexisNexis Risk Solutions UK&I

The automotive landscape continues to evolve as the U.K. witnesses an uptick in drivers transitioning to Electric Vehicles (EVs) albeit with a slight plateau for private buyers recently. With conventional fuel prices soaring[i], concerns about the climate growing and new vehicle models emerging, motorists are increasingly turning to EVs, resulting in the market share reaching 17.6%[ii] in May 2024. While this growth has largely been sustained by business buyers, the insurance industry is striving to make the EV insurance market more accessible and competitive to all. In an automotive industry with a history spanning just over a century, the rise of EVs is just beginning.  There is still a lot to learn and to be understood about risk assessment, underwriting, and claims within this emerging sector and the insurance sector is swiftly adapting.

A crucial focus on risk assessment

Central to the evolution of EV insurance is the need for a comprehensive understanding of the disparities in risk and claims costs between EVs and Internal Combustion Engine (ICE) vehicles. While EVs remain a minority on UK roads, insurance providers face challenges in accurately setting premiums due to limited claims experience.

Research conducted by Innovate UK and Thatcham Research reveals that EV claims are already 25.5% more expensive than their ICE counterparts, with repair times extended by 14%. Factors such as parts availability, high battery and drivetrain costs, and complex repair methods contribute to this disparity. With the cost of an EV being higher and often having higher equipment levels, it is vital that comparisons are made on a “like-for-like” basis.

In assessing risk, the driving dynamics of ICE and EVs need to be considered too.  For motorists used to driving a petrol or diesel vehicle, switching to EVs introduces drivers to increased power and torque, rapid acceleration, and being heavier – increased momentum, necessitating adjustments in driving behaviour. The characteristics of EV brake regeneration can also cause the vehicle to behave differently and feel unusual to ICE drivers.  All this must be borne in mind at point of quote.  In fact, studies conducted by LexisNexis Risk Solutions in the U.S. indicate a 14.3% increase in the frequency of insurance claims and a 14.5% rise in claim severity (the value that must be paid out when there is a claim) when transitioning from ICE to EV vehicles. Understanding and mitigating these risks is imperative for insurers navigating the burgeoning EV market.

Adapting to emerging technology

As EV technology continues to develop, early adopters are encountering benefits but also facing the inevitable challenges that come with such new technology. Higher insurance costs have been a concern for new EV owners, and it has also been seen as a barrier to some prospective buyers[iii]. However, insights gleaned from more mature EV markets such as China, where EVs make up just under a third[iv] of the car parc and data from the U.S., are informing the development of data-driven solutions to address this issue. Providers like LexisNexis Risk Solutions are now leveraging new datasets to personalise EV insurance, with a focus on factors such as past vehicle experience to potentially lower premiums. 

Collaboration as the cornerstone

Efforts to reduce EV insurance costs hinge on collaboration across the automotive and insurance sectors. It is in everyone’s interests to work together. The sophisticated technology and safety systems in EVs require specialised knowledge and often need bespoke equipment for repairs. By fostering collaboration, stakeholders could help speed up standardised training and equipment protocols. The repair of Advanced Driver Assistance Systems (ADAS) is a good example of the benefits of a more collaborative approach.  It wasn’t too long ago when repairers had to mend the vehicle before sending it to a franchised dealer for calibration.  Now, many independent automotive technicians have the necessary equipment in house or can reach out to specialists who will get the work done efficiently on their behalf.  Organisations such as the IMI and Thatcham Research are working hard to champion education and training so that EV’s are better understood across the repair sector.

In fact, ADAS is also incredibly relevant to risk-based pricing on EVs. Vehicle Research Data (VRD) shows that EVs can have 20-30% more ADAS features than comparable ICE vehicles. This data is critical for better understanding the levels of driver risks and claims costs associated with different EVs.

By pricing according to these different risk levels, insurance providers may choose to offer lower rates to attract better EV risks and higher rates to avoid losses on higher-risk EVs. This approach might, in turn, encourage EV drivers to practice safer driving behaviours to lower their risk levels and improve road safety for all.

In fact, in a timely example of industry teamwork, motor insurance providers can look forward to increasingly consistent Vehicle Research Data (VRD) after Thatcham Research entered a strategic relationship with LexisNexis Risk Solutions.  By leveraging our network of insurers, MGAs and insurtechs, we plan to streamline access to VRD data, and achieve consistent matching of Thatcham VRD to vehicle registrations. This is another step in helping to ensure consumers are receiving the right price when shopping for insurance on EVs.

Addressing battery repair challenges

One of the foremost challenges facing the EV repair market is the intricacies of battery fault diagnosis, repair and recycling. Thatcham Research is also spearheading efforts to advance repair methods and training in collaboration with EV manufacturers. Meanwhile, data solutions are being developed to enhance understanding of battery health, with a focus on identifying actionable insights at the point of quote to facilitate informed decision-making regarding repairs.

Charting the Path Forward

While the EV market is still in its infancy, collaboration and data-driven insights are poised to propel its rapid expansion. As knowledge surrounding EVs and their associated risks continues to evolve, insurance providers can refine their underwriting processes to deliver fair and accurate premiums. Ultimately, by leveraging data to mitigate risks and lower insurance barriers, we can accelerate the adoption of EVs and drive toward a sustainable automotive future.

As the automotive industry undergoes a transformative shift toward electrification, the role of data in shaping the future of EV insurance cannot be overstated. By embracing collaboration, harnessing emerging technologies, and prioritising risk assessment, insurance providers can navigate the complexities of the evolving EV landscape and facilitate a seamless transition to a more climate friendly future for our roads.