Driving down EV insurance premiums with data

Authored by Andrew Ballard, product principal, LexisNexis Risk Solutions UK&I

The UK car parc is shifting gently towards electric vehicles (EVs). The cost of conventional fuel prices coupled with concerns about the climate and favourable Benefit in Kind tax breaks for business drivers, have helped boost sales of EVs. There are now more than 1.1 million EVs on UK roads and 55% of these have been registered in the last two years. If transition to EV is to continue successfully, however, more needs to be done to make EVs attractive to the private buyer, and that includes tackling the cost of EV insurance premiums.

Looking at the whole history of motoring, the emergence of EVs is just a blink of an eye, so there is still much to learn about risk assessment, underwriting and claims. Certainly, while EVs remain the minority of our roads, accurately setting premiums will remain a challenge as claims experience remains limited.

Nevertheless, an important touchpoint in risk assessment is considering the driving dynamics of internal combustion engine (ICE) and EVs which can be markedly different in areas like vehicle mass, brake regeneration, power, and torque, meaning new EV drivers take time to adjust to the different driving style. In fact, studies conducted by LexisNexis Risk Solutions in the U.S. indicate a 14.3% increase in the frequency of insurance claims and a 14.5% rise in claim severity (the value that must be paid out when there is a claim) when a driver moves from a conventional ICE car to an EV. This differed by make and model as well as by the demographic of the main driver / policyholder.

The good news for EV drivers though, is that the insurance sector is learning from more established EV markets in China (where over half of all EVs are in use on the roads) and the U.S. Indeed, data providers like LexisNexis Risk Solutions are already leveraging datasets to help personalise premiums which consider past vehicle experience to potentially lower premiums.

The effect ADAS (Advanced Driver Assistance Systems) has on risk-based pricing of EVs is also critically important. We already know that ADAS can reduce claims frequency by over 30%. We also know that EVs can have 20-30% more ADAS features than comparable ICE vehicles. This data, delivered by our ADAS data enrichment solution, LexisNexis® Vehicle Build, is essential for better understanding the levels of driver risk and claims costs associated with different EVs.

Of course, the big driver of EV premiums is the cost of claims. Parts availability, high battery and drivetrain component costs, and complex repair methods have contributed to significantly higher claims costs for EVs.

The automotive sector has been working together, however, with organisations like the IMI and Thatcham Research spearheading education and training to make EVs better understood across amongst repairers. This effort is paying off as research shows that the full cycle time from accident date to repair completion has reduced by 6 days over the last two years, helping reduce overall repair costs.

One factor that has been widely reported for contributing to high EV insurance costs is the practice of writing off a vehicle due to battery damage. Diagnosis of faults, repair and recycling has been a challenge. Thatcham Research is also leading efforts to advance repair methods and training in collaboration with EV manufacturers. Meanwhile, data solutions are being developed to enhance understanding of battery health, with a focus on identifying actionable insights at the point of quote, like details of battery cell data, to enable more informed decision-making regarding repairs.