A greener future. With heightened risk
Around the globe, the take-up of electric vehicles (EVs) is expected to accelerate rapidly into the future – driven by consumer demand and government policies aimed at tackling climate change. But EVs come with a host of new risks and claims scenarios for manufacturers, suppliers and insurers.
“From supply chain networks to production processes to the product itself, the automotive industry will have to respond to many emerging risks to make the transition to EVs happen,” says Daphne Ricken, senior underwriter liability at Allianz Global Corporate & Specialty (AGCS), a global corporate insurance carrier.
“The anticipated growth of EVS brings the prospect of new defect or performance issues; more expensive repair costs; new fire and cyber threats; and even reputational issues around sustainable sourcing and disposal of critical components and raw materials for batteries.”
A new AGCS report, “The Electric Vehicles R-EV-olution: Future Risk And Insurance Implications”, indicates that the use of EVs is expected to soar as their cost gradually declines, the choice of available new models doubles (as expected) within five years, their driving range increases and consumers, as well as governments, demand greener low-emission vehicles.
Safety and reliability
Tests conducted by the Allianz Center for Technology Automotive (AZT Automotive) have shown that the high voltage components of EVs are well protected and will not be affected in most crashes. Statistical evaluation of Allianz claims also shows that EVs are less likely to be involved in accidents today – they typically drive short distances with limited mileage overall. However, any damage sustained can be, on average, more expensive than for conventional cars.
“If the battery in an electric car has to be replaced, it can result in a total loss in many cases,” says Carsten Reinkemeyer, head of vehicle technology and safety research at AZT Automotive. “In addition, the fact that they can be repaired only at specialist repair shops can contribute to costs.”
Battery life and performance are critical issues for EVs. Given the high cost of replacement or repair of battery units, a failure to live up to performance guarantees will pose questions around liability for manufacturers and suppliers.
As with conventional vehicles, defective electrical components and short circuits can spark a fire, while lithium-ion batteries may combust when damaged, overcharged or subjected to high temperatures. High voltage battery fires can be very intense and difficult to extinguish, and can also release high levels of toxic gases, and these fires can take 24 hours or longer to control and be made safe. Due to the relative rarity of such fires to date, response and rescue services have limited experience of dealing with such incidents.
Despite their green credentials, EVs can pose potential liability and reputational risks for vehicle manufacturers and suppliers. A rapid uptake in EVs will require manufacturers to source sustainable supplies of critical components and raw materials as they ramp up production.
For example, battery technology will drive a huge increase in demand for cobalt and lithium, outstripping current supply – lithium supply has been predicted to triple by 2025. Effective recycling and reuse of materials will therefore be essential. Environmental and social concerns will also put emphasis on the sustainable sourcing of minerals, as well as traceability and transparency of supply chains. High voltage batteries could also pose a pollution risk, if not properly disposed of.
Electric cars are likely to have increased connectivity and reliance on data, sensors and software, including artificial intelligence, to manage vehicle systems and aid driving. As with conventional vehicles, increased connectivity is likely to give rise to cyber vulnerabilities, including the threat of malicious attacks, system outages, bugs and glitches.
Insurance implications and claims complexity
Electric mobility will have many implications for insurance – in particular automotive product liability insurance – and claims, as technology creates new risks and exposures, and as liability shifts within the supply chain.
“EVs will consist of fewer but more integrated parts and components,” Ricken explains. “What may have been three parts in a conventional car could be only one part in an electric car. However, the lower number of parts is increasingly connected through sensors and embedded software, adding a new layer of complexity and raising questions around how these parts interact and which producer or supplier is liable for a potential defect or faulty control.”
Fire and explosion risks associated with high voltage batteries could give rise to claims for commercial property insurers, in particular if multiple cars are charged in underground car parks. Claim scenarios are manifold – ranging from overheated battery leads resulting in fires and property damage to breakdown, leading to fire, as a result of electronic failure of the battery management system.