As John Lewis pauses EV cover, industry boss reveals why insurers may ‘run scared’ of electric power

As the UK government continues its drive to end the sale of internal combustion engine (ICE) cars by 2035, electric vehicle (EV) sales are only going to gather pace.

According to figures published by Statista earlier this year (5 September 2023), EV revenue across the UK – which includes plug-in hybrids – is projected to reach £21.4bn in 2028, up from £6.8bn in 2022.

And the data also revealed that those cars that are solely battery powered are expected to make up 76.6% of the total revenue the EV market secures over the next five years.

These projections are backed up by figures from Allianz Partners, which revealed that there had been a shift in motorists wanting to make an EV their next purchase.

Figures released in its States of Mind series report, published earlier this year (20 June 2023), showed that the majority of road users (60%) wanted to make the switch, with there being more of such vehicles on the market.

It highlighted that 450 models were available in 2021, twice the number available in 2018.

Allianz obtained the data after surveying more than 25,000 consumers across 10 major markets, including Australia, Belgium, Brazil, Canada, China, France, Germany, Italy, the UK and the US.

EVs are not cheap to repair should something go wrong, however – according to Confused.com motor insurance expert Louise Thomas, labour and parts associated with EV repairs are more expensive than internal combustion engine (ICE) vehicles.

According to Octopus EV, electric cars also pack thousands of individual rechargeable lithium-ion cells that work together to power the motor.

And Jeff Winn, executive chairman of claims management company Winn Group, told Insurance Times that “batteries cost a fortune”.

“EV parts are also harder to get than on petrol or diesel cars, so that is driving increasing costs, longer repairs and waits for those parts,” he added.

“For the moment, EVs are a big problem from an insurers’ point of view.”

EV cover

Winn’s comments came after John Lewis Financial Services announced on 2 October 2023 that it had temporarily stopped offering insurance to drivers of EVs following a decision made by its underwriter Covéa.

Back in April 2021, Covéa entered into a five-year motor insurance partnership with the department store – the deal sees car insurance marketed by John Lewis, with policy administration, underwriting, pricing and claims service provided by Covéa.

John Lewis said it had halted offering new policies as well as renewals for EVs as Covéa wanted to analyse the risks and costs entailed with them.

And in an update sent to Insurance Times on 23 November 2023, John Lewis said a review was still ongoing.

“Next steps are still under review by Covea, our underwriter, which manages these policies,” a spokesperson said.

Winn felt that insurers may “run scared of the much higher costs” EVs could present in the event of a claim.

“In the short-term, I wouldn’t be keen on insuring electrics,” he added.

“With the battery having to be replaced, because you don’t know whether it’s safe or not, they are turning into a £15,000 repair.

“They are causing some shocks through the insurance world.”

Batteries

Unsurprisingly, the cost of repair associated with EVs has seen premiums rise for owners of such vehicles.

Back in October, data published by Confused.com and WTW on 13 October 2023 showed that UK motorists were paying £924 on average for premiums, some £338 more than 12 months ago – reflecting an average yearly rise of 58%.

However, Confused.com said its own data showed that, for EVs, drivers saw an increase of 72%, while for drivers with internal combustion engine (ICE) vehicles, the rise was 29%.

Winn explained that one of the reasons driving up the cost of repair was that engineers “are very reluctant to agree that a battery is ok after it has had a collision”.

“There could be a slight crack in the battery – unseen by the human eye – and it could cause the battery to explode if it got wet or in another small impact,” he added.

“That’s causing a major problem in terms of the cost of repair – it has gone through the roof as a lot of the engineers are saying ‘it might look like a rear-end shunt and it might look like obvious slight damage, but I am not verifying that battery is safe’.

“If you’re having to change the battery on the basis that it may have been damaged, then that’s expensive.”

While this provides a reason as to why the cost of repair could be going up, Ben Taylor, business development director at Automated Insurance Solutions, said it was becoming “difficult to justify” such a high price when the value of a vehicle may not be that much higher.

“There are elements and components of those cars that make them harder to repair and also often more uneconomical to repair,” he added.

“When you are talking about £12,000 to £14,000 to replace a damaged battery [of a vehicle] in the lower end of that mid-range vehicle market, for example, it becomes a very difficult thing to justify [that cost] on a £20,000 vehicle.”

Positives?

Despite this, however, Winn highlighted that when the production of diesel or petrol cars ends, such challenges may ease.

“When they stop producing as many diesel or petrol cars, it might go the other way,” he said.

“There [also] might be somebody out there able to invent something that tests the battery to make sure there is not any hairline fractures in it.

“In the long-term, it will settle down.”

And Taylor added that EVs “had their place” and felt they do not pose additional risks.

“These vehicles don’t pose a higher risk, certainly around fires,” he added.

“Anything can catch fire – with petrol vehicles, for example, you are driving around with 50 litres of highly combustible fuel suspended underneath a vehicle and we’re seeing relatively low issues there.”

And with EVs set to become more frequent on the roads, Gill Nowell, head of EV communications at LV= General Insurance (LV=GI), told Insurance Times that insurers must do more if they are to support the UK motor sector in driving the country’s net zero carbon dioxide emissions ambitions.

Nowell said the industry has the capability to become a catalyst for change, which starts with educating motorists on the benefits of driving electric vehicles.

“We are all aware of the need to move away from fossil fuels and the [insurance] industry is in a position where we can provide not only the products to insure the vehicles, but also be part of the wider process which enables drivers to make the switch,” she added.