Insurers told to have greater EV focus to avoid risk of political issues

With the environment one of the biggest priorities on the UK government’s agenda, politicians have grouped together to set big targets for the net zero transition.

For example, back in September 2023, Prime Minister Rishi Sunak vowed his party would do whatever it took to reduce carbon emissions by 68% by 2030 and pledged a “pragmatic, proportionate and realistic path to reach net zero by 2050”.

As part of its plans, the government is aiming to ban the sale of new petrol and diesel cars by 2035 and secure funding of £620m for zero emission vehicle grants and electric vehicle (EV) infrastructure.

However, while the switch to EV’s is central to the government’s strategy, the insurance industry has raised fears about such vehicles, given their use of lithium-ion batteries.

And 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.

John Lewis said at the time that Covéa wanted to analyse the risks and costs entailed with EVs.

Paul Baxter, chief executive of The Green Insurer, told Insurance Times that issues could arise if the government’s and insurance industry’s interests were not aligned.

“The insurance market has to [insure EVs] because if firms don’t, it will become a political issue,” he said.

“The government is trying to make people have EVs and if they find they can be insurable at a reasonable cost, then there is going to be some government action on this.”

Less focus?

With the government becoming more of an advocate for EVs, the vehicles have started to pique the interest of motorists.

According to figures published by Statista last 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.

However, Novo Insurance director James Allenby said he didn’t see EV’s being a “massive priority” for insurers.

He explained that despite the awareness and growing uptake of EVs, they only currently made up around 2% of the market.

“It’s there and growing, but for most insurers, certainly ones we have been speaking to over the last couple of years, the message from them is that they need to do something, but right now there are bigger issues and prioritises,” Allenby added.

Jeff Winn, executive chairman of claims management company Winn Group, felt that insurers may “run scared of the much higher costs” EVs could present in the event of a claim.

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

Winn said that “batteries cost a fortune” and that “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.”

Learning

However, with the government planning to make new car sales all electric from 2035, Baxter felt now was the time for insurers to have more of a focus on the EV market.

He felt this was key so insurers could gather as much of an understanding about the vehicles as possible before they become the predominant choice of transport.

“If you are not doing it, you are not learning anything,” Baxter said.

“My message to insurers is that these are going to become the majority of the market and you might as well be learning now.

“Therefore, when they do become the majority, you are not starting from scratch and building up expertise.”

Allenby felt that if insurers had less of a focus on EVs, then the government would have to take more of an active role in helping the industry with its propositions.

Despite this, he felt that enforceable action was not needed at this moment in time.

“The marketplace, in general, has to do more in terms of making EVs more accessible and that has to be partly driven by manufacturers and government incentives,” Allenby said.

“Essentially, what consumers want is an insurer who understands why someone had bought an EV, what is important to them and more importantly, when that vehicle is damaged, the issue is dealt with correctly.”