The market for petroleum alternatives like electric and hydrogen is accelerating but this developing tech brings new risks to the road. Risks that offer new opportunities to insurers
Back in the day, we saw Sony’s Betamax compete with rival JVC’s VHS in the battle for videotape supremacy. It lost out in that race, but Sony won the war as an early developer of Blue-ray, which eventually did away with the more pragmatically named HD DVD.
Now, car manufacturers are engaged in their own format fight and they are taking it to the streets. In pole position are the likes of Tesla, as well as the more established carmakers Nissan and Volkswagen, which have all invested heavily in electric vehicle technology.
Gear shifts needed
Somewhere towards the back of the pack are those investing in hydrogen technology, a much less crowded field.
“On the one hand, there’s a transformational shift from gas to electricity,” says Evangelos Avramakis, head of digital ecosystems research and development at Swiss Re Institute. But, he says, firms are still investing heavily in other types of vehicles that have not taken off so far, including hydrogen-powered cars, as well as traditional vehicles.
Both depend on costly infrastructure. For starters, hydrogen is expensive and would require petrol stations to be refitted. Electric cars, meanwhile, need charging points and risk putting a strain on the power grid.
The most significant risks associated with an electric vehicle come from batteries that are damaged in a collision
Avramakis says one of the biggest concerns for electric vehicle owners centres around the battery itself. “The battery life is crucial,” he says, explaining that there is an “interplay between storage and consumption” of power that will prove a concern for those shopping for an electric vehicle.
“People have a fear that they might not get enough supply and access to electric fuel infrastructure,” Avramakis says, adding that they also worry about the limitations of the battery, which can only power an electric car for a maximum of 375 miles before it needs charging.
There he sees an insurance opportunity; and Swiss Re is already providing extended warranty coverage for batteries in electric vehicles. With an average year-over-year growth of 60%, it will change the landscape for the automobile industry and automobile extended warranty insurance.The three core technologies of new energy vehicles (NEV) - battery, electric motor and electronic control - make risk assessment of extended warranty for NEVs way different than for traditional automobiles. Specific EWI products for NEVs are booming
The firm advises on best practice to maximise the life of a battery and also insures against it failing, Avramakis says.And insurance protection for battery technology is likely to prove popular as electric vehicles become a more common sight on our roads.
“Not surprisingly, the most significant risks associated with an electric vehicle come from batteries that are damaged in a collision,” says Donald Light, who heads up the North American property and casualty insurance practice at research firm Celent.
He says batteries prove a risk to anyone at the scene of a crash involving an electric vehicle, like police and fire personnel, emergency medical staff and tow truck drivers, as well as those involved in the accident itself. “Even after being towed to storage or a repair shop, some electric vehicle batteries have self-ignited, leading to other exposures for insurers,” he says.
Perversely, insurers depend on those events to gather information about how often they occur and what they cost. “As this is a developing market, insurers have had no historic data to work with regarding the cost of repairs, so such a new market has made some insurers cautious in their underwriting, raising premiums or even declining to insure electric cars,” says Anthony Monaghan, head of Marsh’s manufacturing and automotive practice for the UK and Ireland.
Time changes everything
But, as time passes, more data will emerge. “As electric cars have become more mainstream, the challenges for insurers is reduced,” explains Nigel Teasdale, head of motor at law firm DWF. “Repair costs are becoming more predictable and while there are still specialist electric vehicle insurance policies that can be taken out, they are not the only method.”
He adds: “While pricing can be more difficult and historically has been more expensive, the potential cost of repair may be offset by the cars themselves being less susceptible to theft due to limited range.”