Insurance Rates for BEVs May Fall – Unless They Don’t

With the announcement of price cuts by battery-electric vehicle makers Tesla and Ford earlier this year, questions naturally arise over whether those price cuts could lead to better affordability, and in particular lower insurance rates for those vehicles.

Auto insurance premiums for BEVs typically are higher than those for similar internal-combustion-engine vehicles – at least for now. And to be sure, vehicle sticker price is part of that equation. More expensive vehicles cost more to insure just to start. So, in theory, bringing that sticker price down to begin with could begin to whittle away at insurance premiums.

But there is more to the riddle of BEV insurance premiums than just MSRP.

In theory, BEVs should cost less to maintain than their ICE counterparts. That is because a typical BEV has just a fraction of the number of moving parts found in an ICE vehicle; by some counts, BEVs have dozens of moving parts compared with thousands in an ICE vehicle. There are simply fewer places where the vehicle can mechanically fail in a BEV.

But market forces aren’t letting that be true – again, at least for now.

While any mechanic on any street corner can fix just about any ICE, BEVs are more specialized, and their certified mechanics are fewer and farther between.

A similar story goes for replacement parts – with BEVs’ smaller market share not creating enough demand to invite many aftermarket manufacturers to specialize in BEV parts, repairs must be made with OEM components, driving up repair costs.

So, with repairs of BEVs a more specialized affair, the cost of getting them back on the road after a claim tends to be higher.

For now, BEVs’ share of the U.S. new-vehicle market is in the single digits, though that number is growing fast. As that number grows and more BEVs create more demand for mechanics and components, those market forces theoretically will take hold and drive down costs.

However, all that is before mentioning the battery pack.

For many BEVs, the battery pack represents a significant portion of the value of the entire vehicle, so if it gets damaged in a fender bender, that may mean the entire vehicle ends up totaled.

That is a phenomenon many Tesla owners are seeing, where their insurers are opting to total a low-mileage vehicle rather than opt for a pricey repair involving the battery pack.

From a driver’s perspective, the high likelihood of totaling the vehicle is a good case for a gap insurance policy to prevent an upside-down auto loan from spelling financial disaster.

But from a manufacturer’s perspective, the unique risk profile of BEVs might also present opportunities to minimize risk in their overall design.

That is the approach Tesla is taking through its white label insurance program. Tesla is partnering with insurers to offer Tesla-branded insurance in many states, and they are collecting claims data from those policies and feeding that post-crash data back to their engineers.

CEO Elon Musk told a conference call of investors that Tesla’s aim is to use that claims data to make meaningful engineering improvements and ultimately drive down claims in the future.

The other thing Tesla-branded insurance is doing is collecting anonymized driving data from all Tesla drivers. They use the vehicles’ onboard computers and telematics sensors to help show how Teslas are being driven. The idea is that with its suite of onboard safety features, Teslas hopefully are going to be able to be objectively shown to be safer to drive than a comparable vehicle from another manufacturer.

With that data and risk profile in hand, they hope to persuade insurers to bring down rates for all Tesla drivers.

Tesla isn’t the only manufacturer with the ability to aggregate onboard telematics data, so it wouldn’t be surprising to see other automakers also work to help build similar risk profiles to persuade underwriters to look more favorably on their vehicles.

Michael Giusti

However, higher adoption rates of BEVs, along with other market forces coupled with more robust risk profiles driven by rich vehicle and driver data, likely will play a bigger role in BEV insurance premiums over the medium term.

Michael Giusti (pictured, above left) is an analyst at insuranceQuotes.com, which publishes in-depth studies, data and analysis related to auto, home, health, life and business insurance.