Insurance industry examines coverage, risks of all-electric vehicles

As state and federal authorities move to prohibit sales of internal combustion vehicles and encourage adoption of all-electric autos, insurers are continuing to examine how coverage options and liability claims may change with the advent of more gas-free cars and trucks.

New questions have been rising with the recent announcement that California will transition to all electric-powered vehicles by 2035. With about 17 other states set to follow suit, so far, there are bound to be changes in insurance as the number of EVs expand.

For now, auto insurance policies for electric vehicles aren’t all that different from those covering gas guzzlers. But that will change, analysts say, as the unique characteristics of high-tech battery-powered autos will mean new options for coverage. At its base, electric vehicles are more expensive and repair costs are higher than for gas-powered ones, which may automatically mean higher insurance costs.

Rates are higher

“Because the vehicles are more costly, the rates of insurance are on average, between 13% and 15% higher than for standard vehicles,” said Michael Orefice, senior vice president of operations for SmartFinancial, a digital insurance comparison platform, based in California. Orefice said there are many issues related to the emerging presence of electric vehicles that the industry has yet caught up with.

“The jury is still out on what the industry will do,” he said.

Particular concerns have been raised related to cyber risks and illegal hacking of the computerized EV technology.

“It's challenging for insurers because this isn't an area that traditionally had been a focus,” said Sandee Perfetto, senior director, Personal Lines Core Products, Underwriting Solutions at Verisk, which specializes in analytics in rating, underwriting, claims, catastrophe and weather risk, and others. “So this is an area that we definitely are engaging with insurers on and trying to get their focus on and feedback around where the coverage for these risks really belong.”

Perfetto said initially insurers were mostly concerned with risk analyses related to the high tech batteries in electric vehicles, some of which have had instances of exploding or catching fire. There are also the risks to first responders to a battery fire accident and where the liability lies.

“That’s something we continue to monitor the data just to see if there's more instances of fires related to the electric vehicles and where the coverage for these risks really belong,” said Perfetto. “Does the issue need to be carved out so that it ties back the OEM side of things, if they're not properly putting in firewalls or other protections for such risks? Right now, it’s not carved out but it’s definitely an area that we’re focusing on.”

Charging stations potentially vulnerable

Charging stations that connect to electric vehicles through wi-fi and are potentially vulnerable to cyber attack is another area being researched by underwriters. If a person’s vehicle or personal information is stolen during charging, or the vehicle’s operation is taken over by a hacker, can that crime be insured and where does liability lie?

“As more charging stations are created, you’re going to have to trust that the plug and everything works,” said Orefice. “You're going to be driving up there and plugging in your $60,000-$70,000 car into an outlet you have no knowledge about. So the question is: What if something happens?”

The auto-driving capabilities of new vehicles, not solely relegated to electric cars, is also an area being evaluated by insurers. Generally, most insurers say a driver is responsible for an accident even if the car was on auto-drive at the time. But what if can be determined that the vehicle’s software was improperly installed, or bugs weren’t sufficiently cleaned, or the technology simply did not do what it was supposed to do? Then the fault might lie with the manufacturers.

“This creates some new questions that I think that we, as an industry, are still trying to figure out,” Perfetto said. “Right now, there are financial responsibility laws in place in each of the states and the insurance sits with the auto insurer. But I think there’s a likelihood and potential for subrogation to come into play. If they evaluate the incident, determine that, whether it's an accident due to a malfunction, whether it's the vehicle was hacked into and ultimately stolen, like where that ultimate responsibility lies. I think it's still being figured out.”

The higher repair and parts costs for electric vehicles will likely also drive up the cost of premiums, according to industry executives.

“EVs are still a relatively new technology, which means parts and labor can be costly when it comes to repairs,” said Margarette Stine, an automotive expert with 4WheelOnline. “This should be factored into an insurance policy so drivers aren’t left with a hefty bill if something goes wrong.”

Finding service is challenging

Finding service for an electric car after an accident is more challenging because there are fewer repair facilities available and to parts are often harder to come by, which may increase the cost of insurance, experts say. Even the low noise generated by electric cars could be a source of accidents and liability.

“The absence of noise in electric cars is one of their selling points but there is a chance of what might happen as some pedestrians may not be able to hear an approaching electric automobile,” said George Arkin. owner and operator of Nexus Auto Transport, a Chicago-based vehicle shipping company. “Even though the government has legislated that electric cars make audible noises, the typical electric automobile is still quieter than the typical gas-powered car.”

Generally, though, electric vehicles have advanced safety features that should result in fewer accidents and thus negate somewhat insurance sticker shock. But it’s uncertain if things will play out that way.

“Insurance companies are going to need to develop language around safety and reliability features that are essential,” said Ben Michael, Director of Auto, of Michael & Associates, a criminal defense law firm in Austin, Texas. “The battery is a particular liability, since they can potentially explode under the wrong conditions and are expensive to repair or replace. Overall, though, electric vehicles offer far fewer risks in terms of accidents as well as repairs.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].