Electric vehicles grow costlier amid insurance crisis

Electric vehicles (EVs) are in danger of becoming uninsurable as analysts struggle to understand the risks inherent in EV batteries.

Reports of exploding EV batteries following collisions are growing, leading authorities to recommend extra safety measures for EVs. UK government guidelines, for example, require repair shops to “quarantine” EVs that sustain even minor battery damage by separating them from other cars by at least 15 meters. Government officials have proposed requiring wider car spaces for EVs in parking lots due to their risk of combustion, as well as installing thermal monitoring cameras to detect when an EV goes into “thermal runaway.”

Once ignited, EV fires are difficult to extinguish. Reports estimate that 13% of EVs reignite after the initial blaze.

While battery overcharging is said to be one of the causes of combustion, insurance analysts are trying to understand all the triggers that may cause EV batteries to explode. This lack of clarity, combined with high repair costs, leads to higher insurance premiums.

EV battery repair costs are approximately 25% higher than their gas-powered counterparts after rising 33% in the first quarter of 2023, reports The Telegraph. This, in turn, has led to a 72% jump in average EV insurance costs compared with 29% for gas vehicles. Some EV owners are receiving insurance quotes of over $120 per week, while others are receiving quotes double or even triple the year before.

Other car insurers have stopped insuring EVs altogether. John Lewis Financial Services stopped offering insurance for EVs last month, and Aviva only recently restored insurance products for the Tesla Model Y after canceling them earlier this year.

“The battery is an extremely expensive component of an electric vehicle and until we find efficient ways of dealing with it we have the challenge of high premiums for electric vehicles, which nobody wants,” said Thatcham Research CEO Jonathan Hewett.

But high insurance premiums are only the latest factor making EVs a costly endeavor.

Analyses show that because electric cars require so much electricity, EV owners are likely to pay more per mile than gas vehicle owners. For a Kia e-Niro, for instance, the UK’s best-selling affordable electric car, a full recharge can cost about £54 ($69). On a battery offering an average range of 230 miles, this amounts to 23 pence ($0.29) per mile. But for a 400-mile-range Ford Puma, last year’s fuel-powered bestseller, a £60 ($76) refueling amounts to only 15 pence ($0.19) per mile.

Similarly, owners of the electric Volkswagen ID 3 may find themselves paying 8 pence ($0.10) more per mile for a full recharge than owners of the gas-powered Volkswagen Golf pay for a full refueling.

Those who charge their EVs at home are charged a 5% value-added tax (VAT), while those who charge at public stations pay 20%.

The UK nevertheless plans to outlaw fuel-powered vehicles by 2030.

According to a study published in January,  “[t]ypical mid-priced ICE (internal combustion engine} car drivers paid about $11.29 to fuel their vehicles for 100 miles of driving. . . . That cost was around $0.31 cheaper than the amount paid by mid-priced EV drivers charging mostly at home, and over $3 less than the cost borne by comparable EV drivers charging commercially.”

The cost difference becomes even starker when factoring in EV drivers who need to recharge frequently at charging stations at an estimated cost of $14.40 per 100 miles. EVs become more expensive still considering that many governments seek to charge EV owners additional fees to compensate for lost fuel taxes. 

Israel’s Finance Ministry is considering a travel tax of $0.041 per kilometer for EVs, though the cost may actually be higher. With an average annual travel distance of 16,000 kilometers, EV drivers could expect to pay an extra $656 per year. 

Several US states that pushed for “sustainable” and “environmentally friendly” vehicle alternatives are now imposing additional registration fees on EV owners. Illinois Democrats, for instance, proposed charging EV owners a $1,000 annual registration fee to recoup the loss in gasoline taxes. After intense backlash, however, the Prairie State settled on charging EV owners a $251 annual registration fee, $100 more than their ICE counterparts.

At least 19 states have imposed an extra annual registration fee for EVs ranging from $50 to $235, with Blue states such as Michigan and Georgia at the higher end.