scorecardresearchElectric vehicles vs fuel-based cars: How does it impact your motor insurance?

Electric vehicles vs fuel-based cars: How does it impact your motor insurance?

Updated: 09 Oct 2022, 11:00 AM IST
TL;DR.
A comprehensive cover for an electric car usually costs a little more because of higher repair costs and higher risk factor. Know more
Employees assemble Ather Energy 450X electric scooters at the company's manufacturing facility in Hosur, India, on Tuesday, Feb. 22, 2022. In India, electric vehicles accounted for approximately 15,000 of the 3.1 million passenger vehicles sold in 2021,�a 200% increase in sales over the previous year. Photographer: Dhiraj Singh/Bloomberg

Employees assemble Ather Energy 450X electric scooters at the company's manufacturing facility in Hosur, India, on Tuesday, Feb. 22, 2022. In India, electric vehicles accounted for approximately 15,000 of the 3.1 million passenger vehicles sold in 2021,�a 200% increase in sales over the previous year. Photographer: Dhiraj Singh/Bloomberg

There is hardly any doubt that mobility in the new-age world would be driven by technological advancements. Electric Vehicles (EVs) are leading this revolution with more and more EVs coming on to roads globally, including India. Although they are still a small percentage of all motor vehicles, their share in the overall market is rising fast.

Almost all motor vehicle manufacturers are investing heavily in the EV segment. As per reports, annual EV sales are expected to cross a million units in the current fiscal, witnessing an exponential growth of 84 per cent. At this rate, EVs would soon be taking up a significant chunk of space in Indian roads.

To make a comparison, industry data suggests that EVs already account for half of the Chinese two-wheeler market and a quarter of its passenger cars. With the kind of policy focus that EVs have in India, it won’t be far-fetched to say India would be a strong contender in the global EV market.

Motor insurance for electric vehicles

For any vehicle owner, a motor insurance policy is one of the most important tools to protect their vehicles. Data shows that over 4.5 lakh road accidents are reported on Indian roads every year. Driving safely and following all traffic rules is a must. 

However, accidents by their very nature are sudden and unpredictable. Especially in congested roads with bumper-to-bumper traffic, the probability of a fender-bender is high, and could result in huge repair costs. An insurance policy can financially protect you in such cases by paying for those repairs.

Accidents are one thing, a motor insurance policy also protects the vehicle against theft. This is equally important given that almost 2.5 lakh vehicles are reported stolen in India in a year of which only around 25 per cent are ever recovered.

Add to that, natural calamities like landslides, earthquakes and floods, there could be dozens of scenarios where one’s beloved car could undergo serious damage. These concerns are universal and apply just as much to electric vehicles. And a motor insurance policy is the answer to all such situations, be it a petrol or diesel vehicle, or an electric vehicle.

With more and more people buying, or planning to buy an electric vehicle, they face an important question: how insurance works for electric vehicles. The good news is that almost all insurance companies today offer insurance plans for electric vehicles. Just like insurance for fuel-based cars, insurance policies for EVs provide protection against accidents, theft, and natural and man-made disasters.

Does EV insurance cost more?

Yes and no. When it comes to the law-mandated third-party electric car insurance, it actually costs less because Insurance Regulatory and Development Authority of India (IRDAI) has mandated a 15 per cent discount on premium for EV insurance compared to petrol and diesel cars. In actual terms, a third-party insurance for an electric car with less than 30 KW costs around 1760, whereas for cars above 65 KW, it costs around 6707. For cars with 30-65 KW capacity, third-party insurance cover costs around 2740.

On the other hand, a comprehensive cover for an electric car usually costs a little more because of higher repair costs and higher risk factor. Basically, when it comes to petrol and diesel vehicles, extensive data is available around the risks involved in insuring them and insurance companies have been insuring them for decades. But when it comes to electric vehicles, there is not as much data available. However, as time passes and more clarity is gained about risks involved in EV insurance, premiums are expected to come down.

Another reason why EV insurance is expensive is because electric vehicles are themselves expensive. Moreover, it is also much more expensive to repair or replace electric parts. The biggest cost involved in an electric vehicle is the powerful battery that powers it. These batteries have to be replaced in a few years as they come with an expiry date. They may have to be replaced earlier in case of a mishap.

Next, EVs also incur higher maintenance costs. It is partly due to higher levels of complexity when it comes to their parts, and partly due to lower levels of production of these parts. Moreover, skillful technicians for repairing electric vehicles are not easily available.

This means one would have to get the car repaired at authorized repair centers only, unlike petrol and diesel cars which are often repaired in neighborhood garages which are quite inexpensive. Higher cost of repair also means a higher number of insurance claims, unlike fuel-based cars where vehicle owners often pay for minor repairs themselves to save on No Claim Bonus. This would indirectly affect premium rates.

All these factors that increase EV insurance premium would be mitigated to a great extent as more and more such vehicles come on the road and more and more experience and expertise is gained regarding them over time.

Just like insurance for a fuel-operated car, one can customize their EV insurance policy as well with optional add-ons like roadside assistance cover, zero depreciation cover, consumables cover, and personal accident cover for passengers, and so on to ensure absolute protection at all times.

Ashwini Dubey is Head - Motor Insurance Renewals, Policybazaar.com

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Electric two-wheeler makers
First Published: 09 Oct 2022, 11:00 AM IST