Problems in Electric Vehicles (EVs) insurance

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Insurance companies are not quite ready for Electric vehicles (EV). Insurers are asking for pollution under control (PUC), or the insurance is invalid, but this is a minor issue.

The fundamental problems are staring at insurance companies as EVs are still rarely seen on roads. In insurance, the main issue lies in pricing EV risk into mathematical problems.

Insurance is all about determining risks and fixing premiums based on past years data and mathematical tools. There is a lack of previous information relating to EV. As the shift to EV increases, pricing issues will become prominent.

The EV ecosystem will disrupt the current automotive sector. There is a fear that some companies might rush to look for cheaper parts, especially batteries, which could cause a fire. Insurance companies need to sort this matter as soon as possible to retain consumer confidence.

There are two types of automotive insurance policies – The Third-party (TP), which is mandatory according to IRDAI guidelines and, the Own damage (OD), which is optional for vehicle owners. In the absence of well-developed mechanisms and information, insurers are using traditional methods to determine EV risk.

There is no specialized insurance for EVs, one needs to buy the same insurance as for diesel or petrol vehicles, but this will change soon.

The evaluation of risks associated with fire, battery performance and the high cost of replacement of the battery are some fundamental challenges. The maintenance and cost of EVs are different due to a few moving parts. The battery performance will vary geographically and will depend on weather conditions.

Once EVs production ramps up and becomes more popular, IRDAI will come up with its specific guideline. Till then, the EV insurance will be done according to the ratings of the non-conventional sources of power.

The rating structures (the ability of the insurer to compensate the insured when required) is also a debatable topic, it forms the base for calculating premium and risk.

Traditionally, premiums are calculated on cubic capacity (cc). But this is irrelevant in EV because the ICE used in traditional vehicles is replaced by the motor in EV, with power output calculated on kilowatt (kW). The power output for ICE vehicles is horsepower.

It is impossible to equate cc and kW. It is because hp, which equals kW (1 hp = 0.746 kW), is a measure of power, and cc is a unit of volume.

Thus, the pricing of EV premiums is according to the ICE historical data, which is a flawed formula to use.

The industry is unhappy with the third-party rates calculated by IRDAI. They feel that the rate is low.

The Hyundai’s EV Kona is priced at INR 25 lakhs, producing 100kW power, the third-party insurance is INR 8104 whereas similarly priced Hyundai Tucson, producing 112 hp, the third-party rate is INR 24,305. The premiums have a significant difference.

Hence, it is clear that the regulator needs to step in and clarify the EV rating structure.

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