Swiss Re to sell electric vehicles | Insurance business America
Will this be a promising or challenging market for insurance?
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By Jonalyn Cueto
Electric vehicle (EV) sales are experiencing rapid growth. A current forecast from the International Energy Agency (IEA) assumes that sales of electric vehicles will increase by an average of 30% annually until 2030.
By then, according to Swiss Re, the global market size is expected to exceed $200 billion, up from $51 billion in 2022. By 2035, electric vehicles are expected to account for half of all new car sales worldwide, with an estimated 73 million units predicted to be sold by 2040 . The result is a significant market opportunity for insurers.
How electric vehicle sales have increased
Nearly 14 million electric vehicles were sold worldwide in 2023, up 35% year-on-year. Electric vehicles now account for 18% of all car sales. However, adoption rates vary significantly between regions. For example, electric vehicles account for about 10% of all car sales in the United States, 38% in China, and an average of 22% in the European Union. In the Nordic countries, electric vehicle sales have increased by over 50%.
The rapid growth in EV sales has led to a corresponding growth in the EV insurance market. Studies suggest that this market will also record double-digit annual growth rates until 2030. However, this emerging market poses several challenges for insurers. Higher accident rates and repair costs affect the profitability of the insurance business and require closer cooperation between car manufacturers and insurers.
A challenging market for insurance?
Electric vehicles bring with them new driving behaviors, vehicle risks and repair complexity that pose unique challenges for insurers. One notable change is the abrupt acceleration of electric vehicles from a standstill compared to internal combustion engine (ICE) vehicles, leading to a higher likelihood of accidents. In China, the accident rate for electric vehicles is almost twice that of internal combustion engine vehicles, partly due to the higher proportion of electric vehicles in commercial use.
The repair costs for electric vehicles are also significantly higher than for vehicles with combustion engines. A 2022 US study found that electric vehicle repair costs were 26.6% higher on average. This trend is confirmed by data from Germany and the UK, which show 30 to 35% higher repair costs for electric vehicles. The increased costs are due to the complex technology in electric vehicles, including digital sensors, laser/radar devices and advanced software systems that require more labor-intensive diagnostics and repairs.
To support sales and manage these risks, some electric vehicle manufacturers are acquiring their own insurance licenses or partnering with insurance companies. However, the new risks and repair costs associated with electric vehicles have resulted in higher electric vehicle insurance premiums. In China, the average insurance premium for electric vehicles in 2023 was 81% higher than for standard motor vehicles. Also in the UK, the average premium for electric vehicles was almost twice as high as for internal combustion engine cars, rising to £1,344 ($1,700) at the end of 2023.
Addressing these challenges may require closer collaboration between insurers and electric vehicle manufacturers. By leveraging their respective expertise – insurers’ claims experience and automakers’ vehicle data – both parties can innovate to offer better coverage and service solutions, Swiss Re suggested, potentially integrating driving behavior data and offering tailored repair and maintenance packages.
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2024-05-31 13:10:00
www.insurancebusinessmag.com
