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As electric vehicles become more and more common in the US, what changes will consumers and auto insurers face?
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Author: Daniel Robinson, Written by: Daniel Robinson Author Daniel is a Guide Team writer and has written for a number of automotive news sites and marketing firms in the US, UK and Australia, specializing in the topics of car finance and car care. Daniel is the Guide Team authority on car insurance, loans, warranty options, car services and more.
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Edited by: Rashawn Michner Edited by: Rashawn Michner Managing Editor Rashawn Michner is a Guide team editor with more than 10 years of experience covering personal finance and insurance topics.
This feature is part of an ongoing series titled “The Future of Auto Insurance,” which identifies emerging topics and trends in auto insurance. Read the next part of our series on AI in car insurance.
We are officially living in the age of the electric vehicle (EV). Global sales of EVs are expected to surpass 10 million in 2022, and the International Energy Agency (IEA) projects this figure to nearly quadruple by 2030. In the US alone, there are currently 3 million EVs on the road and more than 130,000 public charging stations – and that number will continue to grow.
The continued growth in popularity of EVs will have a wide impact on various sectors of the automotive industry. So what does this rapid growth in EV sales mean for car insurance? In this article, we at the Guide team will explore the growth of EVs and what this means for both consumers and car insurance companies.
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EVs come with many benefits for consumers in addition to lower fuel costs: they have fewer moving parts to break down, they don’t require oil changes and they’re more common on braking systems than their gas-powered counterparts. and are easy. However, EVs also carry higher price tags, meaning they cost more to insure than traditional combustion engine vehicles.
Along with the fact that EVs cost more than most conventional cars, their parts are more expensive to repair and replace. According to Kelley Blue Book, these are two of the main reasons consumers are seeing higher auto insurance premiums for EVs.
In March 2023, the average price of a new EV reached $58,940. That’s more than $10,000 more than the industry average cost of a new vehicle at the same time, which was $48,008. Because a vehicle’s MSRP has a direct impact on the cost of auto insurance, EV owners are bound to see higher costs for coverage.
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High repair costs also play an important role in determining EV insurance premiums. Although an EV has fewer parts at risk of breaking, the parts that need to be repaired or replaced are very expensive. This is especially true if the EV’s battery pack is damaged. Consumer Affairs found that the average cost to replace an EV battery ranges from $4,500 to about $18,000.
EV owners also lack competent repair shops and technicians. The specialized training required to repair electric vehicles means fewer available options and higher costs for customers when repairs are needed. All of these factors drive up insurance costs for EV drivers.
As electric vehicles become more common and represent a larger percentage of vehicles on the road, repair costs and MSRPs are sure to drop – and insurance costs will follow. However, in the near future, you can expect to pay higher premiums for EV insurance compared to coverage costs for standard vehicles.
We reached out to Nick Vitali, a licensed insurance agent with more than 14 years of experience specializing in personal lines insurance, for his insight on how more EVs will impact consumers. While he agreed that higher repair costs will continue to drive higher insurance premiums, Vitali noted that it’s not just bad news for EV drivers. “Some insurance companies actually offer discounts or incentives for EV owners because they are more environmentally-friendly and involved in fewer fire-related accidents,” he said.
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For additional context, we looked at some annual repair cost estimates from RepairPal. The table below highlights annual maintenance costs for popular EV models, as well as gas-powered and hybrid options:
As you can see, repair costs are higher for electric vehicles, but how much can vary depending on factors like the brand and type of vehicle.
To get more insight into EV insurance costs and how they compare to gas-powered cars, we gathered annual premium estimates from Quadrant Information Services. The average rates in the table below are for 35-year-old drivers with good credit and clean driving records. They represent estimated costs for full coverage car insurance policies, meaning they include minimum liability insurance as well as collision and comprehensive coverage.
Electric cars are also more expensive when it comes to average insurance costs, although this varies by vehicle make, model and year. The national average cost of full coverage auto insurance in 2023 is $2,024 per year. Coverage costs for electric vehicles on this list are anywhere from 10% to 135% higher than the national average.
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Not paying for gas or oil changes will help EV drivers save on traditional car costs, they can also offset higher insurance costs by taking advantage of local, state and federal rebate programs.
At the state level, for example, Colorado offers up to $8,000 in rebates for residents who buy or lease an electric vehicle, and low-income California residents can qualify for more than $30,000 in incentives to purchase a new EV. are Utility companies in many states offer rebates and incentives to consumers who also install certain EV charging systems in their homes.
Federal tax credits are also available for owning certain EV makes and models. The 2022 Inflation Reduction Act provides a tax credit of up to $7,500 for people who buy a qualifying EV with a battery capacity of at least seven kilowatt-hours. This credit has been extended till December 2032.
In addition to credits and discounts, taking advantage of auto insurance discounts available through an insurer is a great way to save. Most major insurance companies offer savings opportunities for safe drivers, policyholders who insure more than one vehicle and who bundle their car coverage with another policy. Opting for a higher deductible can also lower premiums, though it means drivers are responsible for more out-of-pocket costs if repairs are needed.
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Since we’re likely to see some volatility in EV insurance costs in the coming years, it’s more important than ever to compare auto insurance quotes from multiple providers. This is one of the best ways for EV drivers to find quality, affordable coverage that meets the needs of their situation.
The rapid growth of electric vehicles is already prompting changes in car insurance providers, with more adjustments to be sure. “Insurance companies will need to refine their underwriting models and risk assessments to take into account the unique characteristics of EVs,” Vitali said. “Things like battery range, charging infrastructure and availability of qualified repair shops will play a role in determining premiums.”
Perhaps the most obvious change that EVs will bring to insurers is the increased cost of collision coverage. This type of insurance pays for damages to your vehicle when you cause an accident.
Replacement parts and repairs are more expensive for EVs than conventional gas-powered cars. As mentioned earlier, this situation is worsened if the battery of the electric vehicle is damaged in an accident. Insurers will have to manage this risk with increased rates for collision coverage for EVs.
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Charging EVs at home adds another level of consideration for insurance companies. There are two basic levels of home charging for EVs:
Level 1 loading requires no additional changes to the home and is a simple loading option. Although a Level 2 home charging setup typically involves installing a new 240V outlet, insurers do not require EV owners to purchase additional homeowners insurance. However, some insurance companies may require proof that the home charging unit has been properly installed.
Auto insurance providers will have to make some changes in the way they do business as EVs grow in popularity. This is especially true when it comes to claims. As Vitali said, “Insurers may need to provide special training to their staff so they can handle all EV-related claims.”
There’s also a good chance we’ll see new types of auto insurance policies become available to meet emerging EV-specific needs. According to Vitali, “As the EV market continues to grow, insurance companies may expand new policies or coverage options specifically for EV owners, keeping in mind the ever-evolving trends in the electric vehicle industry. “
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