Businesses are rapidly replacing their internal combustion engine (ICEs) powered fleets with electric vehicles (EVs) to reduce their carbon footprint. As part of the process, fleet managers need to address EV specific risks while also making sure that their insurance providers are keeping pace with the company’s changing risk exposure.
The electric vehicle push
In Europe, the EV model offering will continue to grow on the back of regulations that set limits (opens a new window) to each manufacturer's light-duty fleet average carbon emissions. Because companies can earn and trade credits, sales of EVs are critical to balancing emissions from other vehicles.
Major manufacturers are planning to phase out ICE vehicles altogether. The UK will ban the sale of new petrol and diesel cars and vans (opens a new window) from 2030. The Institute for Public Policy Research (IPPR) is even recommending bringing the ban forward to 2022 for the public sector and to 2025 for large commercial fleets, according to IPPR’s June 2020 report (opens a new window).
Electric vehicles will account for 40% of global new car sales by 2030, according to UBS analysts (opens a new window). The number of businesses from all sectors joining the race to net zero is constantly growing (opens a new window). Post-pandemic, the adoption of more sustainable and less polluting transportation is high on companies’ agenda and electrifying the fleet is perceived as an attractive opportunity to slash carbon emissions and pollution. Research by FleetNews (opens a new window) shows that 71% of fleet managers who have switched to EVs did so because they wanted to ‘be greener’.
Electric vehicles tend to have higher upfront costs compared with traditional models but prices are continually falling as manufacturers gain economies of scale.
Lack of charging points may be a problem depending on the location, potentially creating ‘range anxiety’, a term used to describe the concern that an EV is going to run out of charge before the driver can find or reach a charging point on the road.
Another issue is that EVs may take quite long to charge since publicly available rapid chargers are often still hard to find.
Motor insurance tends to be higher for EVs as underwriters aim to compensate for expected higher claims cost.
EVs tend to have lower operating cost and taxes. They also usually require comparatively little maintenance and electricity is generally cheaper than petrol or diesel. A £50 tank of normal fuel will cost around £10 for an EV vehicle.
While these factors may make the switching to EV fleets more attractive, fleet managers should consider a few risk related issues.
The insurance perspective
The fact that claims history for electric vehicles is currently limited is creating some uncertainty for insurers.
Not all EV models can be serviced at any garage of your convenience. Some manufacturers require repairs to take place at the groups’ body shops, which may be further away.
Insurers will generally offer courtesy cars but may not be able to provide an EV replacement vehicle. Analysis from commercial fleet accident management firm sopp+sopp, which manages accidents and repairs for commercial EV fleets in the UK, shows that EV repair costs are significantly more expensive compared to ICE vehicles. Average repair times can increase by up to 20%, in many cases due to the replacement and repair of EV batteries.
There are several aspects that can contribute to higher repair cost for EVs. Unique to EVs is that when any repair work is undertaken, it is necessary to decommission the battery to ensure that the vehicle is safe to work on. This can take up to an hour. The work undertaken by an independent repairer may need to be fully verified and form part of the vehicles service history for future repairs.
Repair delays may occur if replacement parts are not readily available, especially as new models are introduced in the market, affecting the cost of a courtesy car or the credit hire of a third party vehicle involved in an accident.
While insurance prices have come down recently, the cheapest electric car premium is still likely to be more expensive than for an equivalent ICE vehicle.
Insurers are adapting their underwriting strategy to the trend towards EVs but they may need a bit longer to feel comfortable with EV-only fleets due to the fast pace of change in this area. Data on light commercial vehicles and for the company car sector is still limited.
As always, the cost of a vehicle, its top speed, how easy it is to repair, play a role in the premium calculation. Insurers are currently gathering data to get a better sense of potential claims costs but as manufacturers continue to expand their EV offering there is a lot of movement in this space. The same applies to the repair network as service providers adapt to the specific capabilities needed to service an EV.
Issues of concern
Insurers currently do not appear keen to underwrite fleets consisting solely of EV’s.
ABI ratings for certain vehicles are very high and clients are not always aware of this, causing issues when trying to add young or inexperienced drivers, for example.
Repair networks and replacement parts challenges.
If an EV is involved in a road traffic incident, the repair is likely to take longer than for an ICE vehicle.
Write offs can become more prevalent with EV’s generally being more expensive.
Hidden costs and unforeseen exposures e.g. maintenance, charging, slip and trip of cables.
The cost of the repair for an EV is likely to be higher due to the additional labour content associated with testing and verifying systems to ensure electrical safety to both the repairer and the end user.
Additional costs of repair may make EVs more uneconomic to repair and therefore more likely to be categorised as a total loss, resulting in increased salvage costs, thus potentially affecting insurance premiums.
Training to mitigate the risk
The main difference when driving an EV is the stronger acceleration since there is no delay in output. Family sized EVs can accelerate to 60 mph in 5 to 6 seconds while a similar ICO would take about 10 seconds. Some performance models from Tesla can get there in under 3 seconds. This could pose an increased risk for injury or damage particularly if the individuals are not familiar with the vehicle or are inexperienced drivers.
Over the past couple of decades, drivers have become accustomed to using their vehicles for hundreds of miles before even considering the need to refuel. Many new EV models have battery ranges in excess of 200 miles, fast-charging times of sub-30 minutes for 80% charge and the charging point network is expanding quickly.
Nevertheless, the driving style has a direct impact on battery depletion. Smooth acceleration and avoiding ‘harsh’ brakes will have a noticeable effect on the EV range. Cold weather conditions can negatively affect the battery range by 30% and heating or air conditioning have a similar range-draining effect. Limiting the top speed will extend the battery life.
Further, EVs are considerably quieter than other vehicles, which can pose an increased risk to other road users. In 2019, European legislation made it mandatory for all manufacturers to install acoustic vehicle alerting systems (AVAS) in all new vehicles from July 2021. This system will make a continuous noise if the EV is driving at low speed (20km/h or less), significantly reducing the risk to individuals that are visually impaired.
Drivers training can help reduce the risk of accident. Maximising the battery life will help keep maintenance costs at bay. Both can contribute to lower claims cost and therefore reduce the insurance premium. It is also advisable to give drivers a basic education on how the EV engine works including simple safety checks and basic maintenance. Damage to the battery can result in a total loss.
The good news
Generally, electric cars have fewer complex moving parts that can be damaged compared to an ICE. In addition, battery packs are reasonably well protected in accidents, reducing the risk of replacement.
While it is often thought that the presence of highly flammable lithium in an EV battery means they present a greater fire risk than an ICE vehicle, a study conducted in the US found that EVs actually present a lower fire risk than ICEs (opens a new window).
Further, EVs are typically less likely to be stolen and more likely to be recovered when they are. This may be due to their limited range and because charging them is relatively time-consuming.
Tesla cars receive over the air updates which may reduce the servicing needs. Some manufacturers share the vehicle data with independent repair service providers that have EV capabilities.
Businesses are moving quickly towards EV fleets but struggling to get the same breath of insurance cover as for traditional fleets. Fleet managers should make use of opportunities to mitigate risk and make it more attractive to underwriters, for example by purchasing add-ons for repairs, recovery, specialist breakdown insurance or specialist accident recovery solutions.
Fleets may need to carry some additional capacity or have the ability to obtain vehicle cover for the longer periods of time EVs will be off the road during repairs.
When planning to move quickly towards electric fleet it is advisable to involve a broker/insurer/leasing company at an early stage to make sure the right insurance policies are in place when needed and future proof existing policies.
For further information, please contact:
Steve Vachre, Motor Practice Leader
T: +44 (0)161 828 3367