Electric vehicles are on the road to sustainability and must benefit from unique insurance options
As companies like Tesla, Ather, Ola, Hyundai, Mahindra, Mercedes Benz, Audi, Hyundai, BMW and Renault continue to develop breakthrough electric vehicles, the adage “Electric cars are the future” is getting closer every day.
The advent of electric vehicles
Electric vehicles are environmentally friendly, less noisy, have superior pickup and, most importantly, a very low cost per kilometer (mileage) compared to ICEs (internal combustion engine). They are also equipped with very high-end software to control every function of the vehicle using digital technologies providing a far superior experience.
However, the VE’s journey from a brutal alternative to the norm has not been smooth. India’s first electric vehicle was a three-wheeler created by Scooter’s India Pvt Ltd in 1996. BHEL also developed an eighteen-seater electric bus in 2000 to operate within the city limits of Delhi, but it did not did not capture the public’s imagination or the investor’s interest. . In addition, a clear lack of electric infrastructure has also hindered the acceptance of electric vehicles.
In 2007, Hero Cycles launched a series of bikes in partnership with British company ULTRA Motor. These e-bikes or e-bikes have become popular with other companies such as TVS Motor and Hero Electric who have also started manufacturing and selling e-bikes. The popularity of these vehicles was demonstrated in 2016-17 when around 500,000 e-rickshaws were sold in India.
Most of these early vehicles were lead acid batteries which are bulky and have poor range and poor pickup. We now move on to lithium-ion batteries which have a long range, faster pickup and quick recharge. This gradual but significant push for electric vehicles is supported by the government’s launch of the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) program in 2015 and the FAME II program in 2019 to encourage the purchase of electric vehicles and hybrid vehicles by providing financial assistance and supporting the electrification of public and shared transport.
Fast forward to 2022, companies are aggressively developing and introducing affordable electric vehicles to dispel the idea that electric vehicles are expensive. As of 2021, electric vehicles represent only 1% of all registrations in India; however, the government plans to increase this number to 25% by 2024.
EV and insurance
While the cost of ownership and repair costs for electric vehicles continue to fall, insurance rates have remained high. The reasons for this are manifold.
> One of the critical factors why car insurance premiums are higher for electric vehicles is that the cost of producing an electric vehicle is higher than that of its gasoline or diesel counterparts. The higher the cost of a vehicle, the higher the insured declared value (IDV), and therefore the increased premium.
> In addition, modern electric cars are equipped with a lithium-ion battery, which represents more than 40-50% of the cost of the car. This is also another reason for high insurance premiums.
> Electric cars also require a high level of maintenance due to the complexity of car parts. The repair of such vehicles can only be done by highly skilled mechanics and the current talent pool is relatively small compared to conventional auto mechanics.
While the premium for comprehensive auto insurance policy may vary from insurer to insurer, the premium for third party auto insurance policy is set by the Insurance Regulatory and Development Authority of India (IRDAI), the industry regulator. Compared to gasoline or diesel vehicles, the IRDAI has set up motor third party liability insurance rates for EVs with a 15% discount to promote the use of environmentally friendly EVs. Liability insurance is mandatory and provides financial protection against death, bodily injury and/or third party property damage caused by accidents and even if electric vehicle high voltage batteries catch fire. For example, if the electric vehicle catches fire while charging, the damage caused by the fire will be covered by the damage insurance policy. However, this protection is only available when using the electric vehicle manufacturer’s charger or an original equipment manufacturer (OEM) approved charger. Keeping abreast of these details is key to understanding if an insurance policy is appropriate when buying an electric vehicle.
However, there are various ways in which EV insurance policies can be arranged and made affordable. For example, buying a policy online allows you to compare policies, add-ons and services from different insurers in the market, and the experience is hassle-free and paperless. You can also choose the voluntary deductible option. A voluntary deductible is a fixed amount that you choose to pay when claims occur. By choosing a voluntary deductible limit, the insurer’s claims liability decreases and the buyer benefits from a premium discount. The introduction of supplementary covers will also go a long way towards reducing out-of-pocket expenses, as they only insure specific parts of the electric vehicle.
Although electric vehicles are quickly becoming affordable with advances in technology, they are still relatively expensive to insure. Incentivizing electric vehicle ownership and reducing purchase costs will lead to lower insurance costs and both should be priorities. However, regardless of the cost, EV insurance reduces the financial implications in the event of liability or damage. Therefore, it is imperative that your EV be insured at all times to avoid unforeseen financial losses.
The author is Piyush Ranjan, CTO Coverstack (Coverfox Group)
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