The electric vehicle market in the United States is experiencing rapid growth, with sales increasing by 60% year over year from 1 million in 2022 to 1.6 million in 2023. The National Renewable Energy Laboratory predicts that by 2030, there could be between 30 million to 42 million electric vehicles on U.S. roads. However, despite the environmental benefits and popularity of EVs, there is a downside to owning one – higher car insurance rates.
According to the National Association of Insurance Commissioners, electric vehicles cost an average of $44 per month more to insure than internal combustion engine vehicles. The reasons behind these higher insurance rates were recently discussed in a webinar by the Society of Insurance Research.
Xiaohui Lu, vice president of global business development at LexisNexis, highlighted that one of the main factors contributing to the higher insurance rates for EVs is the severity of auto claims. The severity of EV auto claims is 34% higher than that of ICE vehicle claims. Additionally, those who switch from an ICE vehicle to an EV have a 31% higher post-switch loss cost compared to those who switch from one ICE vehicle to another. This higher collision risk is further evidenced by a 14% greater severity and frequency of claims for those who switch from an ICE vehicle to an EV.
Jonathan Atteberry, senior director of data science at LexisNexis, explained that driving an EV is fundamentally different from driving an ICE vehicle, which contributes to the higher auto insurance claims for EV drivers. Electric vehicles are typically wider than ICE vehicles and have a higher torque/weight ratio, leading to a higher collision loss cost. Additionally, EVs have immediate and strong acceleration, which can catch drivers off guard if they are not accustomed to it.
Atteberry also pointed out that research shows the greatest collision risk for an EV occurs within the first six months of ownership as drivers adapt to the new driving experience. However, this risk decreases over time as drivers become more familiar with how to safely operate their EVs.
Lu emphasized the importance for auto insurers to understand the unique risk profiles of EVs and adjust their rates accordingly to accommodate the growing number of EVs on the road. By incorporating these distinctive risk factors into their rates, insurers can better serve EV owners and accurately assess the risks associated with insuring electric vehicles.
In conclusion, while the popularity of electric vehicles continues to rise, it is essential for both insurers and drivers to be aware of the potential challenges and differences in insuring and driving EVs compared to traditional ICE vehicles. By staying informed and adapting to the changing landscape of the automotive industry, both insurers and drivers can navigate the transition to electric vehicles more effectively.