India Is Becoming A Ripe Ground For EV Insurance

Shanai Ghosh Jan 04, 2023

The Electric vehicle (EV) market is expanding and expected to grow at an estimated CAGR of 47 per cent from 2022 to 2027. Electric vehicles (EVs) are gaining significant momentum in the country owing to the rising fuel prices and growing environmental concerns surrounding heavy carbon emissions of internal combustion engine (ICE) vehicles.

Additionally, the low maintenance costs and government-friendly policies and incentives that are encouraging the adoption of electric vehicles in the country. Apart from support from the government, customers are also becoming increasingly environmentally conscious and therefore interest in the EV segment is on the rise. This mindset shift will bring about a dramatic change in the industry. Given that electric vehicles are costlier than fuel-based vehicles because of the high-end technologies, batteries, electrical accessories, and components used; it is crucial to opt for appropriate EV insurance. With the rising adoption of electric vehicles, EV insurance is also increasing its foothold in the sector.

Today, new-age insurers offer all types of motor insurance products like the standalone third-party cover, standalone own-damage cover, comprehensive cover, or a bundled long-term cover for new vehicles. Apart from that, there are other add-ons like Pay As You Drive (PAYD) and Pay How You Drive (PHYD) that customers can benefit from to save their premium.

I believe that progressive transition to electric vehicles is integral to the India’s journey towards eco-friendly transportation. EVs are also projected to be more affordable in the long run than gasoline and diesel vehicles, with low operating costs and being environmentally friendly. To support the objective of making India a leading electric car market by 2030, the national and state governments are also making positive strides toward developing a cleaner and greener transportation system. For instance, the government's new battery-swapping policy with interoperability standards, which was announced during the 2022 Union Budget, will help the country adopt EVs more quickly. This spells great tidings for the evolving EV insurance sector in the country.

EV sector gaining momentum in India

Industry reports indicate that between April and September 2022, India sold 277,910 electric two-wheelers, a 404 percent increase over the same period the previous year when 55,147 units were sold. 18,142 electric automobiles were sold in H1 FY 2022–23, a 268 percent increase.

Also, with the possibility of 100 per cent FDI, new production centres, and intensified efforts to improve charging infrastructure, the EV sector is expected to gain further momentum. Other factors like federal subsidies, regulation that favours higher discounts for electric two-wheelers built in India, as well as an increase in localised ACC battery storage production will support the growth of the sector. The Ministry of Power released the Revised Consolidated Guidelines & Standards for Charging Infrastructure for Electric Vehicles (EV) in January and made changes to it in November 2022. Additionally, the Cabinet authorised a production-linked incentive programme for the automobile industry in September 2021 to promote the development of electric and hydrogen fuel cell cars.

EVs usually cost higher when compared to traditional petrol and diesel vehicles. However, with advancements in technology, higher adoption will increase affordability. New models are coming out in 4-wheelers at competitive pricing, helping people switch to the cleaner mobility alternative. EVs have a low running cost and increasing charging infrastructure makes them an attractive option. As EV purchases increase nationwide, so will the demand for EV insurance. Like ICE vehicles, electric vehicles also require insurance to operate on Indian roads.

The mitigable challenges with EV insurance

It is essential to acquire an insurance coverage for your EV, just as with any other car purchase. It is crucial to remember that an electric vehicle's insurance coverage differs from a non-electric one. This is because electric automobiles are more expensive than regular cars. It is important for insurers to provide cover for the battery, which is the major component and high-cost factor of any EV. Also, important to protect damage to chargers/ cables that are not a part of the vehicle and are used for charging at home etc.

Despite the many issues and challenges that come with these vehicles, the sector has been evolving. For one, the EV battery is a hurdle, since it comes with no guarantee from makers. Then there are high risks associated with it, as it could be prone to overheating and fire from short circuits, or damages from water logging. EV valuation and it's IDV are still high because of battery risks, and no buyback guarantee on damaged cells from battery makers, among other things. This made insurers wary of providing comprehensive insurance policies for EV at competitive prices.

Electric motorcycles have batteries outside and that is why they are more susceptible to theft, but as of right now, a typical comprehensive auto policy does not cover this component. So, specific add-ons are being developed for this by insurance companies.

However, EV battery thefts and fires are again, isolated incidents, just like similar ones with normal fuel vehicle. As more EVs start running on Indian roads in the future, the data will become clearer and more positive. Also, the battery technology is evolving itself with every passing day, and government will be introducing the concept of interchangeable batteries. There are also talks of standardising batteries and charging stations, so that the one-size-fits-all approach makes it cheaper on consumers. This is mitigating the risks; valuation and calculation are coming to a convergence. Where insurance is all about risks and rewards, these developments are helping the EV insurance sector come up with policies that encourage consumers to switch to EVs.

Better policies and incentives

There is a need for better policy decisions to popularise the adoption of EV insurance. The Insurance Regulatory and Development Authority of India (IRDAI) has mandated reduced third-party liability premium rates for electric vehicle insurance, while the central government has provided tax incentives. However, there is a need to improve the incentivisation on third-party covers, which stands at a mere 15 per cent discount today.

The positive news is that increasing tech interventions and EV policy amendments are encouraging insurance providers to toe the EV line. Today, they have the freedom to launch their policies and test the market, thanks to the IRDAI rule that has done away with pre-approvals to launch coverages. This gives insurance companies an opportunity to tailor-make products and later fine tune it as per the consumer needs. So, insurance companies can just test what works in the EV insurance space, ensuring a win-win for both the provider and the consumer.

Insurance companies are also looking at OEM tie-ups with EV makers to hedge the risk factor and create an effective standardisation of insurance covers and premiums.

Insurance on demand

The latest rage in Indian auto insurance sector is usage-based insurance, which is also making its mark in the EV spectrum. This allows a consumer to now pay for insurance premiums based on usage and consumption. Until recently, regardless of how their vehicle was used, everyone who purchased a motor coverage paid the same rate. This changed when the IRDAI introduced concepts for usage-based insurance like Pay as you drive (PAYD) and Pay how you drive (PHYD), which provide customers flexibility over the premium they wish to pay depending on their consumption.

PAYD and PHYD use telematics to establish premium rates. To track the miles travelled, insurers either employ a telematics device or a mobile app. If an insurer uses a mobile app, it will detect motion and instantly activate the coverage. As a result, a customer will only be charged for the period that the car is on the road. The most common drive time, speed, location, occurrences of forceful braking, rash driving, and more are all tracked by telematics devices or applications. Insurance companies evaluate driving behaviours using this data and provide a driving score. This telematics-based score aids insurers in determining premium rates. So, premium now depends on the driving behaviour, and not on the fact that a consumer drives an EV. This is democratising the playing field for buying insurance.

Companies like Edelweiss General Insurance have come up with SWITCH, which is the only automobile insurance product on the market that produces a real-time driving score and dynamically rates the premium. SWITCH has been created with the ever-evolving driving preferences of today's tech-savvy consumers in mind. The business has made an effort to reward safe driving and require clients to pay only for what they use. It is the only on-demand motor product in the nation that gives the customer total control. They can now only make payments based on how much and how often they drive. SWITCH's motto is "Drive Less, Pay Less; Drive Better, Pay Less." Additionally, it motivates people to drive carefully and safely. To map data, some companies also use a plug-in USB memory stick.

Insurers are walking the extra mile

Insurance firms have begun providing extra services and coverage to capitalise on this potential market. For instance, many companies provide service umbrellas that include features like a dedicated EV hotline, SOS, charging information, and more. This is in addition to the standard benefits that all car insurance policyholders receive, like roadside assistance, medical coverage, etc.

Also, consumers are increasingly searching for additional advantages provided by the insurer when obtaining insurance, such as cashless repair, smartphone-enabled self-inspection, and the ability to customise IDV. A pleasant client experience is facilitated by customer service, the availability of add-on choices, and Claim Settlement Ratio (CSR), which is the total number of claims closed by the insurer.

Excellent prognosis for EV insurance

The EV insurance sector is a steadily growing and rising one, with excellent developments on all horizons. With EV adoption on a galloping high, insurers have been doing the extra bit for consumers in tailoring customised policies, mitigating risk factors related to batteries and technology, hand-in-hand with OEMs. Improved telematics are helping mine data to seamlessly determine driving behaviour, in turn helping democratise premium. Not only is this promoting safe driving practices, but also pushing more people to buy insurance policies for their EVs. A positive culmination of all these things will help the EV insurance sector grow in India, paving the way ahead for a cleaner and sustainable mobility option.