Briefing: Soaring EV sales spark new underwriting concerns over fire risks

By Jon Guy

New figures released this month (February 2025) by the Society of Motor Manufacturers and Traders (SMMT) showed a 5.5% increase in transactions in the UK’s used car market in 2024.

This rise was driven by a surge in demand for pre-owned electric vehicles (EVs), with transactions involving these vehicles in the used car market increasing by 57.4% last year.

Transactions concerning plug-in hybrid vehicles and hybrid electric vehicles also grew – by 32.2% and 39.3% respectively – meaning that electrified vehicles represented a 7.7% share of the UK’s used car market in 2024.

This is good news for the government, which is pushing ahead with plans to outlaw the sales of new internal combustion engine vehicles in the next decade, and for the motor industry. However, for insurers, it compounds the growing issues around lithium-ion battery risks.

In a press release issued this week (11 February 2025), insurer Allianz warned motor traders that the threat of EV battery fires needed to be pushed higher up the insurance agenda – if battery fires are a prominent concern when regarding newly manufactured EVs, then imagine how this risk could escalate within the used car market.

Allianz highlighted that when EV batteries are damaged, mishandled, stored or transported incorrectly, they can experience thermal runaway – this is a rapid self-heating fire that can lead to explosions occurring days or even weeks after the initial fire.

As an example, the insurer cited two recent motor trade premise fires it was aware of, which resulted in around £5m and £1.5m worth of claims respectively. Both incidents were the result of a faulty EV battery that had been removed and stored at a garage, awaiting collection from the manufacturer for investigation.

Risks around EV batteries are certainly heightened when vehicles are showing signs of battery defects or are subject to recalls or advisory notices linked to the battery. Businesses with high vehicle throughput, such as sales companies and repairers, are particularly affected.

Education on emerging risk

What is concerning is that the motor sector – including maintenance and repair facilities – are still battling to keep pace with the new technology in EVs, including battery care.

This creates new challenges for motor insurers that are facing applications for cover from owners of used vehicles, many of which may not have been brought from a specialist motor dealer.

Insurers are quick to stress that battery fires are extremely rare at present, but – like any new technology – the evidence on vehicle battery longevity and whether fire risks increase with age is still being established.

What is evident is that brokers will be at the heart of the insurance industry’s efforts to educate the motor trade and UK drivers on both the risks and the steps needed to mitigate the threat of a catastrophic battery fire.