Electric vehicles have been on the rise in recent years, with more and more of these eco-friendly cars on the road. However, a concerning trend has emerged from the insurance industry: electric vehicles cost more to insure compared to traditional gasoline vehicles. In a report by LexisNexis Risk Solutions, it was found that EVs have a 17% higher claim frequency and 34% higher claim severity, leading to a rise in the number of paid claims and total claims payment amount. Despite the increase in the EV fleet in 2023, the risk associated with EVs has not decreased.
### Rising Insurance Costs for EVs
Consumer Reports has also highlighted the high insurance costs of electric vehicles, with hundreds of dollars difference in annual insurance costs compared to gasoline models. This increase in insurance costs is attributed to higher claim frequency and severity, as well as the expensive nature of battery replacement in EVs. This trend is not expected to change anytime soon based on current factors.
### Challenges for Insurers
The Highway Loss Data Institute reported that EVs are less likely to be stolen compared to gasoline cars, offering some relief to risk-minded insurers. However, the escalating profitability challenge posed by higher frequency and severity of EV claims is a concern for all EV insurers. Differing driving experiences in EVs have contributed to these challenges, with LexisNexis pointing out that EV claims are more severe compared to internal combustion engine vehicles.
### Risky Driving Behavior
In 2023, American motorists exhibited riskier driving behavior across the board, with increases in speeding, driving under the influence, and distracted driving offenses. This rise in risky driving behaviors has led to higher bodily injury severity and material damage claims. The higher risk environment has also prompted a greater number of EV drivers to actively seek lower insurance rates, resulting in increased policy shopping and switching.
### Tesla’s Insurance Solution
Recognizing the high cost of insurance for EVs, Tesla has launched its own insurance product called Tesla Insurance, available in 12 states. Using a real-time algorithm based on driving habits, Tesla Insurance aims to provide more competitive rates for EV owners. Additionally, insurers have faced criticism for delayed payments and dissatisfaction with the claims process, indicating a need for improvement and potential competition in the insurance market.
In conclusion, the rising insurance costs for electric vehicles present a significant challenge for both insurers and EV owners. As the EV market continues to expand, insurers must find ways to mitigate risk and provide more competitive rates to ensure the sustainability of EV ownership. With advancements in technology and monitoring systems, the insurance industry has the opportunity to adapt to the changing landscape of transportation and offer innovative solutions for EV drivers.