Impact of Electric Vehicles on Car Insurance in India

This shift to EVs is bringing changes not only to the automotive industry but also to the car insurance sector, primarily in risk assessment, types of coverage, and premium calculations. With India's goal of 30% EV adoption by 2030, it's clear that traditional insurance products won't be enough. If you are planning to buy one or already own one, you should know how insurance for an electric car works a bit differently from that for regular petrol or diesel cars.Read more

How are EVs Changing Car Insurance?

Like regular car insurance, electric vehicle insurance financially protects EV owners from accidental damages, theft, fire, natural disasters, battery-related issues, damages to charging equipment, etc. However, the differences between both types of insurance are mainly because EV components, repair processes and risks differ from conventional ICE (Internal Combustion Engine) vehicles. Have a look:

Government Discounts on Third-Party EV Insurance Premiums

In India, third-party insurance is mandatory by law for every vehicle. It covers any damage or injury your car causes to other people or their property. To promote electric mobility, the Indian government offers 15% discount on third-party EV insurance premiums through the IRDAI. The actual premium you pay depends on the battery capacity of your EV. Take a look:

Why Do EVs Have Higher Own-Damage Insurance Premiums?

Own-Damage (OD) insurance pays for repairs to your own car if you get into an accident, and it is usually more expensive for EVs. Here is why:

• Expensive Battery: The lithium-ion battery pack is the heart of an EV, and it is significantly expensive (40% to 60% of EV's total cost). If it is damaged in an accident, its replacement can cost lakhs of rupees. This can increase the insurer's claim cost and consequently the OD premium of an EV.
• Sophisticated Electronics: EVs are equipped with advanced electronic components and systems like ADAS, repairing which require specialised technicians, diagnostic equipment and replacement parts. This increases the overall repair cost compared with conventional car repairs. For example, an accident can damage the battery casing, electric motor or other high-voltage components, which then requires specialised inspection before repairs are approved.

Add-Ons Also Raise EV Insurance Premiums Compared to Regular Cars

Besides the zero depreciation, return to invoice and consumables covers, which are the most valuable add-ons in car insurance for a regular vehicle, EV owners also must opt for the following add-ons that are specific for electric cars:

• Battery & Charger Protection Cover: Regular insurance might not cover a battery failure due to water logging or an electrical short circuit. As a result, the battery protection cover is the most important add-on to have with your EV policy to protect yourself from significant battery replacement bills.
• EV Roadside Assistance: If your EV runs out of battery, the EV RSA add-on arranges a mobile charging van/charger or towing to the nearest EV charging station by flatbed tow trucks.

How Monsoon Risks Can Increase EV Insurance Costs

For an EV owner, waterlogging is a major risk. If water enters the battery or the electric motor, it can cause a short circuit or complete failure. Because fixing water damage is highly technical, the average cost of an electric insurance claim rises to nearly Rs. 65,000 during the monsoon, which is 25% higher than the Rs. 52,000 average recorded during the rest of the year. This monsoon season spike makes EV claims about 14% more expensive than conventional cars on average.

Important Factors to Consider While Buying Electric Car Insurance

You need to keep in mind the following aspects when choosing an insurance policy for your electric car:

• Battery Coverage: Check the EV battery warranty and ensure the insurance policy offers coverage beyond the warranty period.
• Charging Infrastructure: Look for the insurer's tie-ups with EV charging providers, which will come as useful in roadside assistance.
• Government Schemes: Check for any government incentives related to EVs and if the insurer offers discounts or benefits.
• Specialised Repair Workshops: Know if the insurer has a network of repair garages with mechanics trained for EVs.
• Claim Settlement Process: Examine the claim settlement process of the insurer for EVs to ensure efficiency and transparency.

Are Electric Car Insurance Premiums Likely to Decline?

The insurance sector is actively working towards developing innovative insurance solutions that specifically cater to EV characteristics and promote sustainability. While insuring an EV is currently expensive, the coming years will likely bring down EV insurance costs. Here's how:

1. Technological Advancements in EV Batteries: EV insurance rates may also reduce as batteries become inexpensive and more long-lasting.
2. Government Initiatives: The government of India offers discounted rates for third party insurance for EVs.
3. Growing Competition in the Insurance Sector: An increasing number of insurance providers are entering the EV segment, which could stabilise insurance premiums.
4. Expanding Repair Infrastructure: As more authorised service stations get established and mechanics receive training, EV repair is likely to become affordable.

Tips to Reduce EV Insurance Costs

Are you planning for an EV? Follow these essential tips to get EV insurance at an affordable price:

• Compare Quotes: Always compare car insurance from multiple insurance companies before making a choice.
• Opt for Higher Deductibles: Opting for a higher deductible may also help you get insurance at a reduced price.
• Install Anti-Theft Devices: Installing a certified anti-theft device in your EV can also mitigate insurance premiums.
• Opt for EV-specific Plans: Some insurance providers now provide custom EV insurance with add-ons like the battery cover to protect your EV's battery and electric motor.

Moreover, new-age insurers also offer usage-based insurance models that align well with EV owners. These include pay as you drive insurance (PAYD) or Pay How You Drive (PHYD) insurance policies, which track driving behaviour and patterns, allowing you to save on your EV insurance premiums.

Future of EV Insurance: Tech-Driven, Tailored Solutions

Electric cars have sophisticated & expensive battery systems, and fixing them is a real deal. With issues like EV fires, insurance providers have to develop comprehensive policies designed specifically for electric vehicles.

Insurers can use advanced tools such as IoT, telematics, and AI-driven analytics to make electric car insurance more personalised and specific. This will not only make roads safer but also promote flexible pricing and tailor-made coverage, particularly for commercial vehicles.

Many insurance companies are stepping up to offer EV-specific policies, which include coverage for private charging stations and expensive EV batteries. At the same time, the government of India is playing a key role in accelerating EV adoption. The battery-swapping policy from the 2022 Union Budget has benefitted not only EV owners but also the motor insurance sector, opening up growth opportunities within the rapidly emerging market.

Final Words

While it is true that compared to ICE vehicles, the insurance costs for EVs tend to be higher, vehicle owners must carefully review their coverage requirements. On the other hand, insurance companies must come up with well-defined and more comprehensive car insurance policies that offer coverage for both EVs and petrol/diesel vehicles. Only by crafting insurance products catering toward EV-specific risks and benefits can insurance companies empower both automotive and motor insurance industries to promote greener and sustainable mobility.