Why insurers should prepare for more electric vehicles

As car manufacturers step up efforts to introduce and promote new models of electric vehicles, their adoption has skyrocketed. Sales of electric vehicles grew by about 4.6% of new passenger car registrations in the first quarter of 2022, up from 2.6% full year in 2021 and 1.5% full year in 2020. California currently leads the way with electric vehicles accounting for almost 15% of all passenger car sales in the state in the first quarter of 2022 and about 39% of electric vehicle sales nationwide.

However, new tax credits contained in the Inflation Reduction Act and the plans of both NY And California a ban on sales of new gas-powered vehicles by 2035 will likely lead other states to adopt similar rules. State-level legislation, combined with new tax breaks, may finally provide enough momentum to propel EV adoption beyond the tipping point.

Automakers are working to assess how the rapid growth in demand for electric vehicles will impact supply chains and production. While the spread of electric vehicles will certainly bring about a dramatic change for manufacturers, it will also have a huge impact on the entire ecosystem that supports proper insurance and repair of electric vehicles. As more electric vehicles are sold in the US, the insurance and collision repair industries will see a wider range of claims and repairs.

Electric vehicles are part of an increasingly complex number of registered vehicles that are on the roads with advanced technology. For example, almost all electric vehicles are equipped with connected car technologies, advanced driver assistance systems (ADAS) and telematics functions, resulting in models with up to 100 million lines of code, 70 computer systems and 150 electronic sensors. Understanding this added complexity will become increasingly important from an underwriting standpoint as more insurers buy these vehicles.

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While these technologies have their benefits, they also come with additional costs. Latest data shows that collision-damaged electric vehicles currently have higher average repair costs and cycle times than their internal combustion engine counterparts. These repairs often involve numerous scans and calibrations requiring diagnostic capabilities to ensure that these more complex vehicles are repaired correctly and thoroughly. In addition, overloads that occur during an accident can cause “concussion” inside high-voltage batteries, forcing repairmen to conduct pre- and post-repair checks to monitor battery cells and temperature to avoid the possibility of fire.

Unfortunately, electric vehicles don’t have many repairs that require battery replacement. If the battery is damaged in a serious accident, the car is most likely completely destroyed. The data also shows that electric vehicles have a higher percentage of returns to repair shops for extra work. Once repairmen start repairing EVs more frequently, higher efficiencies can help bring EV repair costs in line with non-EVs, but this won’t happen overnight.

The expected surge in interest in electric vehicles could put additional pressure on the industry in terms of rising costs and longer cycle times, a dynamic that is driving consumer satisfaction with the claims experience. While EV insurance and repairs are not inherently more difficult, you need the right digital and diagnostic tools, coupled with the proper training, to handle the added complexity. Insurance companies, repair companies and parts suppliers must decide when it makes sense to invest the necessary capital to support electric vehicles, based on their individual markets and how fast electric vehicle registrations are growing. As automotive technology advances and becomes more complex, electric vehicles are, in fact, the blueprint for the future requirements of the insurance and repair industry.

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