Data from the UK shows that the typical insurance premium for electric vehicles increased to £1,344 ($1707), an increase of 50 percent compared with a year earlier, and double the cost of insurance for combustion engine cars due to higher cost of repairs for electric models. While insurance premiums for all types of cars increased last year, the increase for electric vehicles was bigger both proportionally and in real terms. The cost of insuring a typical internal combustion engine (ICE) car increased from £514 ($653) to £676 ($859), by 31 percent, but was still £668 ($849) less expensive per year than insuring an electric car. The UK has a higher EV ownership percentage than the United States, and therefore its experience may presage that of U.S. owners.
There was both a higher frequency of claims from EV drivers and a higher average cost per claim than for ICE-vehicle drivers. The average cost per claim for accidental damage was typically 35 percent higher for electric vehicles due to the more complicated technology in electric cars, which tended to require specialist mechanics with specific equipment. EV batteries are also expensive and prone to damage. Because EV batteries are commonly mounted on the floor of the vehicle, it is more likely that it will be damaged even in a minor accident such as mounting a curb. According to an auction company, around half the low-mileage electric vehicles it has salvaged have suffered minor battery damage. The battery is generally the most expensive part of an electric car and can account for as much as 50 percent of the vehicle’s value, costing between £14,200 and £29,500 (over $18,000 to $37,500).
There is also a shortage of technicians with the skills to make repairs. According to the Institute of the Motor Industry (IMI), 39,000 UK mechanics are qualified to work on electric cars. However, there could be a shortage of around 16,000 qualified mechanics by 2032 as electric vehicle sales increase. According to figures from the Society of Motor Manufacturers & Traders (SMMT), 193,221 electric vehicles were registered in the UK over the year to August 2023– a 40 percent increase compared to the same period the prior year. Further, damaged electric vehicles need 50 times more space than gasoline cars when stored for repair owing to concerns about batteries combusting. The issue has gotten problematic enough that at least one UK insurer has stopped insuring electric vehicles.
UK Demand for EVs is Faltering
The Society of Motor Manufacturers and Traders determined that the UK market share of electric vehicles went into reverse last year, as consumers were accosted with high prices and a lack of charging infrastructure. Britain’s car market also shrunk since the pandemic as the rise in home working and net zero policies decreased sales. As a result, some car makers including Tesla cut prices to increase demand. In the United States, government subsidies also reduce the initial cost of an electric vehicle for consumers under certain conditions. The trade association is urging the UK Chancellor, Jeremy Hunt, to increase demand by cutting VAT (the value added tax) on electric car purchases for three years in his next budget, due on March 6. Manufacturers must sell a portion of pure electric vehicles under the UK’s zero emission vehicle (ZEV) mandate. Car makers that do not meet the mandate will face fines, which take effect beginning this year. The UK mandate for 2024 is 22 percent, increasing to 28 percent in 2025, 52 percent in 2028 and 80 percent by 2030. Rishi Sunak, the UK prime minister, delayed a planned ban on sales of new gas cars from 2030 to 2035. London has introduced measures making it harder for owners of cars to enter parts of the city, an anti-personal car approach that has been discussed in some cities in the United States as well.
U.S. EV Insurance Rates are also Higher
The average cost to insure an electric vehicle is $2,322, according to an analysis by Insurance.com. The most expensive electric car to insure is the Audi RS e-tron GT with an average annual premium of $4,150 a year. The Tesla Model S Plaid is second most expensive to insure, averaging $4,115 a year. The third most expensive electric vehicle to insure is the Porsche Taycan Turbo S at $4,028 a year. The Mini Cooper SE is the cheapest EV to insure at $1,479 a year. On average, the cost of electric car insurance is $206 per month ($2,468 per year)–$44 more per month than the cost to insure a gas-powered car.
Insurance rate increases are directly related to the increase in vehicle prices. Elevated car prices had more owners seek repairs for their current vehicle than opt to buy a new one. And, an increase in demand for car repairs increased the price of repair services, which led to ballooning insurance rates. Those rates have continued to rise as repair shops deal with expenses such as pay increases for in-demand workers and high costs for parts, even as supply shortages have begun to ease after the COVID pandemic. According to an analysis of consumer price data released by the Bureau of Labor Statistics, car insurance rates increased 36 percent since January 2020.
The rate increases took hold during the pandemic when a global chip shortage snarled auto production, which sent prices skyward for new and used cars. The elevated prices made it more expensive for insurers to provide replacement vehicles after a major wreck. A rush of demand for car repairs led to a shortage of workers and parts, raising the costs faced by repair shops and the prices charged to insurers. Car repair prices climbed 7 percent over the past year, a rate more than double the overall pace of inflation during that period, according to the Bureau of Labor Statistics.
Conclusion
Car insurance for electric vehicles is more expensive than coverage for a gas-powered model. Electric vehicles are facing higher insurance premiums than gasoline vehicles as the length of repair times is longer, the cost of the component parts is higher, and more electric vehicles are being written off because residual values are currently particularly low. In the UK, the EV insurance premiums are twice those for a combustion vehicle, while in the United States the differential is not yet that high. Wider adoption of electric vehicles, however, could complicate the future of insurance rates. While electric vehicles require fewer parts, each one is relatively costly to replace or fix when compared with the components of a combustion vehicle. Further, cities like London and New York are making it harder for personal transportation for normal people, even beyond the forced adoption of electric vehicles with all of their inherent higher costs of ownership.
