Why you should buckle up with EV insurance

Increased environmental awareness of car buyers, government incentives with an eye on reducing emissions and rising fossil-fuel prices are making EVs the most sought-after alternative.

As more vehicle buyers gravitate towards EVs which have a modified risk profile compared to ICE (internal combustion engine) counterparts, understanding motor insurance and the risk cover becomes critical. The recent spate of electric vehicles catching fire also necessitate a renewed look at the basics of motor insurance from an EV standpoint.

Just third-party cover not enough

While the mandatory third-party insurance covers damages to a third-party including EV batteries catching fire, it does not cover any own damages arising from the same. Therefore, own-damage (OD) cover is vital to ensure financial protection against damages to own vehicle caused by fire. Also, it is mandatory that EV owners use only an EV manufacturer’s charger or battery chargers.

Type 2 design (standard for AC charging) or CCS2 design (standard for DC fast charging generally available at public charging stations) to ensure that fire-related claims are accepted and honored by insurers. For instance, if a vehicle catches fire even after charging it in a stipulated manner, then only a comprehensive policy can fully cover all the damages.

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The damages to policyholder’s vehicle, to third-party vehicles, bodily damages to the policyholder and even to the third-party(-ies), will be covered under comprehensive motor insurance policy. However, damages will not be covered if policyholder uses anything other than the above-mentioned charger/battery. 

Insuring EV at maximum allowed IDV

Electric vehicles are considerably higher priced than internal combustion engine (ICE) vehicles, resulting in a slightly higher insurance premium that varies in direct proportion to the EV’s cost. As a result, EV owners often consider reducing the insured declared value (IDV) to reduce the insurance premium. Despite this short-term cost-benefit, it is strongly suggested to opt for the highest IDV provided by the insurance company. This is to ensure maximum financial protection in the event of a major accident that would deem the vehicle irreparable, also called a total loss (TL).

Also, EV being a nascent market, the aftermarket sales service might not be as evolved as for ICE engines, resulting in faster atrophy. Since the IDV is the maximum amount an insurer is liable to pay in the event of a TL or vehicle theft, choosing a lower IDV can lead to a substantial financial loss. Thus, lowering the IDV to save on the premium outgo will instead increase the net liability for EV owners, negating any savings made in the long term.

Manufacturer guarantee for battery doesn’t cover other risks

The battery pack is the most expensive component of an EV and usually lasts between eight to ten years before requiring a replacement. These batteries are non-repairable and need to be replaced as an assembly in case of internal or external damages. While most EV manufacturers offer an original equipment manufacturer (OEM) warranty ranging from five to eight years on the battery pack, this covers only manufacturing defects.

In the event of a road accident, flood, natural calamity or even a riot, any damage to the battery pack will not be entertained under the OEM warranty, and the EV owner will have to bear the costs through his/her motor insurance cover. Therefore, a comprehensive insurance policy for an EV is highly recommended to financially safeguard oneself from high battery replacement costs in the event of a major accident.

Choosing add-ons for greater risk mitigation

While choosing the maximum allowed IDV will go a long way in protecting an EV, it is wise to opt for add-on insurance covers to protect against higher replacement costs for key components and sub-systems. Depending on the type of EV being purchased and the features provided with it, a range of add-on covers can be availed to for greater protection.

For instance, since electric vehicles are relatively costly, having a Nil Depreciation Cover will ensure that the value of the EV is protected from depreciation as it ages and policyholders receive maximum reimbursement of repair costs irrespective of the car’s age. Return to Invoice Cover, on the other hand, will ensure full compensation of the final invoice value of the EV in case of a total loss such as theft or damage beyond repair.

Insurers offer a No Claim Bonus (NCB) discount of up to 50 per cent on the Own-Damage premium to vehicles with no claim history in the previous years. However, with the rising events of EV fire accidents, having a No Claim Bonus Protection Cover will ensure that the NCB discount can be availed even after filing a (just one) claim during a policy year.

EVs currently enjoy a 15 per cent discount on third-party premium rates compared to their ICE counterparts, further strengthening the case for car buyers to shift to this new breed of environmental and pocket friendly EVs. With the government aiming to increase EV passenger vehicle sales to 30 per cent by 2030 and an increasing number of domestic and international manufacturers announcing the launch of passenger EVs, we are set to see more EVs on the road. And it is time for all EV owners to buckle up with adequate motor insurance for maximum financial protection.

The author is CEO of Reliance General Insurance