Electric vehicles are at the centre of Australia’s sustainability push, but there are many factors to consider – including insurance

By Harris Pozderovic

Following its election last year the Federal Labor Government affirmed Australia’s commitment to reduce carbon emissions by 43% by 2030 as part of efforts to achieve a net zero emission economy by 2050.

At the heart of this commitment is an expectation that the country will see the number of new electric vehicles (EVs) increasing, replacing at least some internal combustion engine (ICE) vehicles.

Federal Government projections anticipate EVs will make up 90% of new vehicle sales by 2030 and 15% of all vehicles – an ambitious target for a country that sold only 21,000 EVs last year and is currently lagging behind most European nations with its EV framework.

A Finity report says the Government’s goal is achievable, highlighting Australia’s strong consumer demand for EVs. But Climate Analytics Principal Sharanjit Paddam says state and federal governments must address manufacturing and infrastructure issues.

“The building blocks of EV infrastructure go beyond simply installing charging infrastructure across the nation,” Mr Paddam says. “Other systems we have come to rely on within our historic vehicle environment – such as roadside assistance, parts, repairs, finance and insurance – need to be adequately evolved to support EVs.

“Rising sales and long waiting lists emphasise that further EV growth in Australia is inhibited not by a lack of consumer demand, but by supply constraints.”

These constraints include a “tightly held” services market, with some EV manufacturers branching out into sub-sectors such as battery disposal, insurance and even repairs – which are reportedly often inflated.

Such concentration of knowledge by manufacturers threatens to limit the ability of traditional businesses working in the motor vehicle space to compete.

Mr Paddam, with input from Finity’s Claims Practice senior consultants Sharon Quinn Grady and Lucy Vowels, says such issues are part of the concern surrounding EV affordability.

“Broadly, EVs are newer vehicles with more advanced technologies that should reduce claims frequency,” Mr Paddam tells Insurance News. “There is some emerging data showing longer repair days, potential greater vulnerability to hail, and nascent availability of repairers that might drive up costs.”

Other EV risks he mentions include faster acceleration, vehicles’ weight – batteries make them heavy – and power/weight ratios.

He says Finity’s analysis last year found insurers were “more or less” charging the same amount for EVs compared to internal combustion vehicles when considering age and agreed value factors.

The market is currently in an “evidence-gathering” stage, given a low quantity of claims data. Mr Paddam expects insurers to focus on pricing differences as more evidence comes in.

“While there are no changes on the product front [from last year’s report], we believe insurers are thinking about EVs more, with more consideration given to underwriting and pricing – even though it is still in the early days of reliable claims data.

“We are currently doing further analysis in regard to [premium] pricing, but our early estimates suggest that EVs are currently priced about 15% higher, likely reflecting some of the additional repair considerations for EVs at this point in time.”

Research from financial planning group Centra Wealth supports Mr Paddam’s early findings, with the firm highlighting increased premiums for EV equivalents to ICE vehicles, such as the MG ZS EV, which reported a 13% more expensive premium than its petrol equivalent.

Premium EV models like the Hyundai Kona EV 2023, which carries a retail price of $60,500, were found to have a 25% more expensive insurance cost compared to its ICE version.

Zurich New Zealand Motor Underwriting Manager Matt McEneaney, who has electric vehicle expertise, says it is widely considered that premium parity between the two vehicle types will develop as the EV market continues to grow.

“There are numerous factors that could influence insurance prices when EVs finally make up a significant percentage of the Australasian fleet,” he tells Insurance News.

“These include the maturity of the EV market, EV safety features contributing to safer driving habits, and the establishment of improved EV repair and maintenance networks.”

Mr McEneaney says challenges impacting EVs, such as high repair costs and supply chain issues, will require a “multifaceted and co-ordinated approach” from industry groups, manufacturers, and governments to alleviate prices.

He also highlights the need for insurers to improve their own understanding of EVs to help prepare for a likely increase in claims.

“While the fundamental principles of motor claims handling remain very similar, assessing and handling insurance claims for EVs does have some differences from traditional car claims due to their unique nature and componentry.

“As EVs continue to develop, this makes ongoing education for inhouse and external EV specialists very important.”

The need for EV education for relevant trades is also a sentiment shared by car repairer AMA Group, whose Technical Training, Prestige and Original Equipment Manufacturer Manager Scott Donnelly emphasises the importance of expertise “from the front office to the detail bay”.

“Like any technology, knowledge is key, so the more information that is provided to our team the better,” Mr Donnelly tells Insurance News. “The expertise required for EV repairs is predominantly in the disconnection and reconnection of the power source and the awareness of the safety considerations associated with this.

“We have a number of OEM facilities that have EV-trained and authorised technicians, but all disconnection and reconnections are performed by qualified technicians either internally or via OEM dealers and approved companies.”

Mr Donnelly says AMA’s training aims to translate the “number of differences” between the repair process for EVs compared to ICEs, including the importance of maintaining temperatures below 65°C to avoid overheating and damaging expensive components such as electronic batteries. Battery packs are the priciest component of an EV, accounting for 30 to 40% of the manufacturing expenses, with some replacements costing up to $30,000.

Practitioner expertise also goes beyond the monetary cost of repairs, with a lack of training and protection equipment increasing exposure to risks such as hazardous materials, electric shock and fires.

“Understanding the effects of repairs on the human body is paramount in the OH&S sector,” Mr Donnelly says.

“Every AMA Group site has been fitted with defibrillators and training provided to the first aid representatives.”

Lithium-ion batteries have caught the spotlight recently for an increasing combustibility rate, with EVs featuring in media reports spontaneously catching fire or causing house fires. But experts have downplayed the risk, with many noting a significantly higher chance of fire risk in ICE vehicles compared to EVs.

Still, Mr Donnelly says this is another crucial point of education for repairers as well as EV owners to get a handle on.

“Although lithium-ion batteries are reliable and the risk of combustion is relatively rare, it is important that everyone is aware of safety processes when handling, storing or disposing of them.

“This includes understanding that even if a lithium-ion battery fire is extinguished, it is common for the fire to ignite again a few hours or days after the initial incident due to thermal runaway.”

A simple choice 

For NDIS service worker Oliver Wilcox, the decision to switch to an EV last year was not only driven by environmental consciousness but surprising cost-saving factors.

“I wanted to do my bit to help slash transport emissions,” Mr Wilcox tells Insurance News.

“In the 12 months since owning an EV, I’ve noticed huge uptake in my hometown of Newcastle, every few cars you notice is an EV now, which is motivating to see and makes me feel like a part of a growing community.”

Mr Wilcox, who now drives a BYD ATTO 3, says he is saving more than $200 a month on petrol costs compared to his previous vehicle, a 2009 Honda Jazz.

“It’s a huge relief to keep costs low, I’ve been paying less than $250 a month to power both my house and my car through winter.

“The cost of petrol is affecting many drivers right now and we need more fuel-efficient low and zero emissions cars to choose from, which can be helped along by policies like fuel efficiency standards.”

He acknowledges that the annual premium for a comprehensive car policy is slightly higher for his EV, amounting to $1879, but he says the costs are reasonably comparable when factoring in the vehicles’ ages and technologies.

Mr Wilcox says concerns over lithium batteries did not impact his decision to purchase an EV, noting that those fears don’t play into the minds of buyers of traditional vehicle owners despite a higher risk.

“There is continued research and development for lithium-ion batteries to improve safety, and we need to ensure there is proper regulation and quality materials are being used when making the batteries,” Mr Wilcox says.

“But I know many people who have owned EV’s for several years and have not experienced any issues with the batteries.”