Why Do Electric Cars Cost More to Insure?
Car insurance is one of many factors drivers need to consider as part of a vehicle’s total cost of ownership, and insurance is one area where electric cars have generally been more expensive than traditional gasoline vehicles. When EVs were first introduced, insurance companies took a conservative approach, pricing insurance higher than for gas cars as there was limited real data to reference. Now, however, EVs are selling in bigger numbers, and there’s enough data to suggest that EVs are subject to more insurance claims and that those claims are generally larger than for gasoline vehicles.
Indeed, in 2023, more than 1.4 million electric cars and plug-in hybrids were sold in the U.S., which represented a 54 percent increase compared to 2022. EVs also represented a larger share of total sales, reaching 9.3 percent of the overall market. As such, the number of electric cars with an insurance policy grew by 40 percent, to over 3.9 million vehicles in 2023 – a huge jump compared to overall private passenger vehicles, which grew by just 1.2 percent in the same period.
EV Insurance Claims Are More Severe
There are now enough EVs on the road, and enough insurance data, says LexisNexis, a data analytics firm based in New York, to support the higher insurance rates being charged for EVs. In 2023, among those 3.9 million vehicles insured, electric cars had 17 percent more insurance claims than gasoline-powered private passenger vehicles. Those claims were 34 percent more severe, as well, resulting in significantly higher repair costs.
Why is that? Most electric vehicles come with the most sophisticated advanced driver assistance systems, which should result in fewer accidents and thus fewer insurance claims. Yet they seem to get involved in accidents more. There could be many reasons for this. Due to electric motors’ instantaneous torque, EVs tend to be much more powerful, from a standing start, meaning that drivers inadvertently drive them faster and more aggressively than an equivalent gas vehicle.
Drivers could also be relying more on those driver assists – like Tesla’s “Autopilot” and “Full Self Driving” systems – than they should be. The current state of such systems require drivers to continue to pay full attention to the road even when they are activated, yet there have been several well-publicized accidents involving EV drivers that were asleep, reading, or impaired, while relying completely on the systems to operate the vehicle. Some of these accidents have been fatal.
The number of incidents that EVs are involved in could be reduced by better education and more first-hand experience for drivers. But what about the severity of the claims, and the resulting repairs?
Electric Cars Can Cost More to Repair
Since most electric cars are heavier as well as more powerful than similar gasoline vehicles, it’s no surprise that when they are involved in accidents, the damage tends to be greater. Electric cars tend to use more expensive lightweight materials in their construction, such as aluminum and carbon composites, to keep weight down, and when those parts are damaged, they can be more costly to repair or replace. And if a battery is damaged in a severe accident, the cost can be astronomical. Sometimes a battery replacement can be so expensive that the vehicle ends up getting written off.
Still, there are signs that the automotive repair industry will find ways to reduce costs and waste. Many manufacturers have now opened battery repair centers that can replace damaged cells and housings, instead of having to replace the complete battery; over time, this should result in fewer write-offs and lower repair costs. More and more body shops are also gaining competence in aluminum and composite repairs, meaning consumers and insurance companies will have more cost-competitive choices.
The Future of EV Insurance Rates
While the explosive growth in the sales of electric cars began to slow down a bit at the end of 2023, they continue to capture more and more of the market, and LexisNexis says that the EV segment of auto insurance will grow significantly in the next few years. As auto insurers gain a better understanding of the risk profiles of EVs and their drivers, they will likely develop ratings and strategies tailored specifically to electric vehicles.
What’s not clear at this point is whether more data and analysis will result in lower insurance rates. What is clear is that more EV buyers are shopping around for better rates – in 2023, 24 percent of EV buyers reported that they were actively searching for lower rates for their auto insurance policies, which is significantly higher than the 19 percent of private passenger vehicle owners. If you own an EV, or are looking to purchase one, it certainly pays to shop around.
