Highs and lows for insurers in shift to e-mobility

Charging modern electric cars. PHOTO | POOL

The gradual shift to new-age mobility services, including electric vehicles, presents a fresh opportunity for support service providers such as insurance firms amid the evolving technology.

As the market and customers adopt new technologies such as e-mobility, autonomous driving, and connectivity, both the automotive industry and motor insurers may be compelled to review their product offerings and ways of working to tap fresh opportunities.

For example, studies show that there will be shifts in insurance because of a significant decrease in the frequency of claims. However, in the event of an accident, the size of claims would be more significant because of the high cost of component replacements, such as sensors or batteries.

A report by McKinsey says even projects that privately owned cars will become less popular as fleet businesses and micro-mobility grow, which will greatly reduce the largest business segment for most motor insurers.

Evah Kimani, the director of partnerships at Britam Insurance, says that even though electric vehicles have better maintenance reducing breakdowns and data and analytics helping in insurance risk profiling, there are emerging risks.

“We are seeing new emerging risks such as software breakdown liability that would present us with new use cases,” says Ms Kimani.

“Before electric vehicles achieve considerable uptake, support equipment like spare parts will be scarce and will most likely be more expensive and this could have the ripple effect of shooting up insurance premiums charged,” she adds.

Other factors that could drive the insurance pricing up, she says, include insufficient driver experience that could increase accident risks as well as lack of benchmark data to support the pricing formula which would see insurers “play safe” by charging higher premiums.

A study conducted by French insurer AXA says electric vehicles are involved in more traffic accidents than conventional petrol and diesel cars due to driver skill deficiency.

The chief factor contributing to the accidents is the rapid and abrupt acceleration which catches drivers off guard.

Another noticeable characteristic of electric vehicles is their quiet operation where the engine is almost silent when starting which can lead to serious collisions, especially in urban settings where there are heavy human traffic crossing roads.

For Tom Gichuhi, the chief executive officer of the Association of Kenya Insurers (AKI), the possibility of battery theft is among the key outstanding risks that could become rampant once e-mobility gains solid traction.

“The possibility of battery theft is a consideration that insurers would want to look at. Since the battery is a fundamental component of the vehicle and it is expensive, once the number of electric automobiles increases, there will likely be a lot of peer stealing from fellow car owners,” says Mr Gichuhi.

Analysts elsewhere have argued that insuring electric vehicles tends to be considerably expensive primarily because their actual cash value is higher than that of fuel-powered vehicles.

On repair and maintenance, even minor accidents that damage the battery pack may require the replacement of the entire battery, which is expensive, while other car parts such as electronic control devices and sensors cost more and take longer to repair.

While parts of electric cars tend to be long-lasting and break less frequently, hence they are more expensive to replace.

Servicing electric vehicles is also a costly endeavour since the working requires specialised tools and training that may not be readily available in an economy where the change is just taking root.

Insurers will be expected to borrow a leaf from established pricing in other jurisdictions which will act as a guide to the development of packages that would be most suitable for the Kenyan market.

McKinsey in a global report says insurers will need to develop new approaches to address the impending decline in car insurance premiums and compensate for this loss with new business models.

Last year, reports indicate the average premium under personal motor insurance for EVs in Korea was $692 (Sh98,402), which was almost one-and-a-half times higher than the $555 (Sh78,921) for gas-powered types.

[email protected]