Why Insuring Electric Vehicles May Cost More
Electric vehicles are becoming increasingly popular in the Northwest. In fact, Washington state had more than 50,000 registered electric vehicles (EVs) in the U.S. as of June 2021, trailing only California, Florida and Texas, according to the U.S. Department of Energy.
The appeal of never again having to fill your gas tank is obvious, but these high-tech rides offer other perks as well, including lower overall maintenance costs, significant government tax incentives and sleek modern looks.
But, before you rush off to test-drive an EV, there’s one cost consideration you need to explore: car insurance. Insuring an EV can be slightly more complicated — and usually more expensive — than insuring a similar gas-powered vehicle. Here are a few reasons why.
EVs are usually more expensive to repair than gas-powered cars, which directly affects the price that insurance companies charge to cover these vehicles. Repairs on Tesla cars are so pricey that some insurance companies won’t cover them at all.
Why are EVs more expensive to repair? The main reason is that they still are relatively new. In addition, they represent a small percentage of the marketplace (less than 5% of total vehicle sales in Washington state), so there isn’t yet an extensive network of EV repair shops or parts suppliers. When a gas-powered vehicle is damaged, an independent repair shop that uses less-expensive aftermarket parts can do the work. When an EV is damaged, the dealer may be the only option, and the owner is forced to pay a premium for their specially trained technicians and proprietary OEM (original equipment manufacturer) parts.
Time is also a factor. It can be significantly longer to complete repairs on an EV because of the limited number of qualified technicians and the extended time it takes to acquire scarce parts. Because of this delay, EV owners will need a rental car for a longer period, which is another cost consideration for insurance companies. Because of this potential delay, many insurance companies don’t extend the rental past the limit listed on the policy, which is typically 30 days in the event of a vehicle repair. In such cases, the additional days of having the rental vehicle is an out-of-pocket expense for owners.
All of these factors also make it more likely that an EV will be totaled (damaged to the point that it’s not worth repairing), even in a relatively minor crash, especially if the pricey battery pack is damaged. These factors should change if EVs become more popular in years to come.
Higher Sale Prices
Another factor in the higher cost of insuring an EV is the retail (MSRP) price of these vehicles. In any given class of vehicles, EVs often are among the most expensive models available. And, as with all types of insurance, the more valuable a possession is, the more it costs to insure. Even if you end up paying much less than the MSRP because of hefty government tax incentives, it’s the actual cash value that is used to determine how much insurance coverage is needed.
Of course, this same issue applies to expensive gas-powered vehicles, be it a luxury sedan or a huge SUV, but when comparing similar vehicle types and trim lines, the electric vehicle is inherently more expensive.
Insufficient data is a major factor in the higher cost of insuring an EV. Insurance companies are constantly gathering and analyzing data, which their actuaries use to price the coverage. A large volume of high-quality data allows them to determine exactly how much risk is involved in covering any particular vehicle, in any particular city, driven by any particular type of driver. The more confident an insurance company is in the findings of its data, the less volatile their pricing can be.
Because EVs are new and represent a small fraction of the marketplace, there isn’t enough data to paint a clear picture of the insurance risk. This can lead to large variations in premium costs. Insurance companies are trying to find the sweet spot between covering their risk and offering attractive insurance quotes.
As EVs become a larger part of the car market, and as insurance companies collect more data about EV drivers, insurance premiums should stabilize and perhaps decrease. Insurance companies are likely to develop EV-specific insurance products, and some even may specialize solely in EV coverage.
Insurance, of course, is just one factor to consider when shopping for an EV. According to AAA research on the overall costs of owning an EV compared to a gas-powered vehicle, there are savings to be found on fuel costs, maintenance and more. As with almost any insurance-related issue, chatting with your insurance agent will provide you with invaluable insight when making your final decision.