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Electric vehicles and the future of motor insurance
How will the rise of electric vehicles and the FCA’s Consumer Duty affect the car hire and replacement vehicle market?
UK insurers under pressure amid the rise of EVs
The number of electric vehicles in the UK eased through the one million mark1 in 2024. Now the relentless march is on towards a ban on the sale of new cars powered by fossil fuels. And with a new Labour government, that deadline is now promised to be 2030, five years earlier than under Conservative rule.
By 2040, there will be a forecasted 11 million EVs on our UK roads2. The challenge for UK insurers is immense, and in the replacement vehicle aspect of their service, insurers have work to do if they want to remain competitive in the EV space.
An Insurance Post/Europcar survey of senior claims and motor professionals at UK insurers revealed that when it came to offering replacement vehicle options for claimants with EVs, 85% had limited EV options or none available.
This is an important finding: the exponential growth of EVs combined with the increasing regulatory demands of improved customer care, such as Consumer Duty, is likely to add pressure on those insurers lacking EV options for their customers.
Insurers and their partners should also be prepared to meet ‘surge flow’ where there is an unexpected increase in demand for EVs from customers, which happens during the winter months when claims rise.
Other current challenges include: investment and training; disposal of EV vehicles; and customer communication and satisfaction.
Encouragingly, some insurers are finding solutions with the right investment, training, and well-structured partnership networks.
These are the players who will hold a competitive edge in the UK insurance market as the country finally becomes an EV-driving nation.
The EV challenge facing insurers
Insurers are still grappling with the complex requirements needed to service EV drivers, leading to a disparate and uneven approach from the market. Some providers are hesitant to offer cover for battery-powered vehicles due to the difficulties in underwriting the cost of replacement or repair of their components.
There are problems in sourcing spare parts and specialist labour, causing some insurers to rethink their appetite. For example, in September 2023 retailer John Lewis stopped selling insurance for EVs after its underwriter, Covea, withdrew cover while it reassessed the cost of EV repairs3.
Despite these challenges, mainstream insurers are committed to the green economy transition and continue to offer cover for EVs.
This is reflected in the findings of the Insurance Post/Europcar survey of claims and motor professionals.
The rise of EVs will be the biggest influence on the replacement vehicle market in the next five years, respondents said.
This raises the important question of whether insurers have the appropriate supply of EVs for their customers.
With increasing adoption of EVs, insurers are likely to find more customers insisting on having EV options while their vehicle is repaired.
Moreover, the ban on the sale of fossil-fuel vehicles is only 10 years away, at which point insurers will need a healthy supply of these vehicles.
The survey revealed that 41.8% of respondents said their insurer had only one primary supplier for the delivery of replacement vehicles.
Investment and management time is needed to prepare for the future, experts say.
Luke LeSauteur, an EV insurance consultant, said: “We put packages and services together whereby insurers can outsource to specialists who can provide them with an overview of their capability today.
“We provide them with reports and recommendations as to things they can start investing in and investigating. There’s not any uptake because it’s easier to ignore it.
“However, they can’t ignore it forever. Is it a year, or two years? It’s about who is going to move first. For the ones that don’t move, it’s going to be to their detriment and the detriment of their policyholders at some point in the future.”
On a more optimistic note, certain insurers are carefully considering provision of EVs.
Colin Davies, supply chain and engineering director at Axa UK, said: “Electric vehicles aren’t generally part of our repair network’s main fleet of courtesy cars.
“However, we recognise this is a growing demand amongst some of our customers. Our hire partner’s current fleet is available to Axa, circa 150 thousand vehicles, of which [around] five thousand are fully electric.
“On this basis, we are confident we could provide an EV if the driver/policyholder requested one.
“If there was a sudden increase in demand beyond our current expectations, we are confident the strong partnerships we have with our supply chain, and in turn with their vehicle manufacturers, would enable us to scale quickly and support our customers accordingly.”
Consumer Duty also raises important considerations for insurers. Some 55% of respondents to the survey believed the regulation, which is built around fairer treatment of customers, had made either a small or large positive impact.
Ensuring customers have a like-for-like EV replacement, or at least offering them the option, would align well with the principles of the regulation.
Compliance consultant Branko Bjelobaba stresses that to remain compliant with Consumer Duty, insurers must be clear in their communication with customers about what type of vehicle replacement they will receive in case of an incident.
They do not have to offer a like-for-like EV replacement or EV options as part of the regulation, but doing so would be ‘great’ for customer service and fit with the spirit of Consumer Duty.
He said: “If you had a scheme that you shouted from the rooftops as an electrical vehicle specialist, and offered to put customers in another EV whilst repair is ongoing, then that is great.
“You would, however, need a car park full of EVs and that could be a big bind in most cases.”
Axa UK’s Davies foresees cheaper lease EVs coming to market, resulting in more EVs being added to fleets. This could improve customer access to EVs.
He said: “We will do our best to provide an EV courtesy car if a customer requests one from our repairer, even though our obligation in the policy is to provide a vehicle to help mobility rather than to supply a certain type of vehicle.
“While some EV customers would prefer an EV replacement vehicle if available, the significant majority are happy to use a [non-electric] equivalent to support their ongoing mobility needs.”
Paul Llewellyn, Ageas head of motor claims, agrees.
He said: “As the majority of vehicles we insure are powered by internal combustion engines we’ve only seen a very low volume of customers claiming for their electric vehicles.
“[EV customers] are offered an electric vehicle as a courtesy car if the repairer has one available but, in our experience, customers are generally happy to use a non-electric courtesy car.”
In summary, while insurers are preparing for the rise in EV, big challenges remain in the market. But insurers still have time to find the solutions on offer to prepare themselves for the future.
Finding answers to the EV conundrum
Asked about the main challenge their company faces in providing replacement vehicles for EV policyholders, survey respondents said the limited availability of electric rental vehicles came out top.
The good news is that there are replacement vehicle providers with a healthy supply of EVs ready to assist.
James Roberts, Europcar head of insurance sales, said: “We have the ability to scale up very quickly – not only because we’ve got strong relationships with the manufacturers, but because our EV station network is lean, it’s agile and more than 70% is fully charged.
“We believe our USP in the insurance sector is our EV capability. We are the early adopters, with a clear commitment to building our EV fleet, network capabilities and customer support.”
EV consultant LeSauteur believes insurers could extend the number of suppliers they use, but the inclination is not there.
Having worked with several insurers on EVs, he says changing suppliers could be a challenge because of the large and complex contracts with replacement vehicle providers.
In terms of commitment, 40% of survey respondents said they had invested in specialist EV training. Another 38.5% of respondents said they had added resources.
Ageas head of motor claims Llewellyn said: “Through close liaison with our repair network and industry experts like Thatcham, we’re keeping pace with this emerging technology, and we have ensured that our Solution Centre network is fully trained to repair electric vehicles by enabling our repair centres to develop the skills they need.”
Axa UK have also invested in training.
“To date, all our engineers have attended the Hybrid & Electric Vehicle Awareness course at Thatcham,” Davies explained.
“We currently employ 16 engineers who hold the EV Technician qualification and seven fully accredited ADAS (advance driver assistance systems) technicians in the unit. This year we are focused on the reaccreditation of the VDA (vehicle damage assessor) qualifications due to expire.
“Our repair network continues to invest significantly in technical training (and tooling) to support growing EV/hybrid adoption and consequent high-voltage repair requirements.”
Davies added that across AXA UK’s Vizion Network there are more than 621 BEV accredited repairers, providing UK-wide coverage, who have undertaken significant training to safely repair EVs, with many including vehicle-manufacturer-certified accreditation.
I do see from repairing our own fleet that the repair durations are falling. Parts availability has improved.
James Roberts, Europcar
“They are engaged with vehicle manufacturers directly to further their own education regarding new and emerging vehicle technologies,” he said.
Replacement vehicle companies also provide training solutions for insurers.
Europcar has mandatory online learning for its staff and EVs are an important part of the modules. Topics include preparation of an EV, dealing with electric cables, charging a vehicle, journey planning and optimisation. Insurers working with Europcar can access the EV learning module material – at no cost – for their staff.
Europcar also offers site visits for insurers, providing frontline staff with a visual idea and understanding of how EVs are prepared and managed as well as having vehicle make and model content accessible via a QR code, giving the hirer access to information on the vehicle controls and safely charging the vehicle.
This helps insurance staff in their customer communication and care. It also gives insurers confidence in offering their customers an EV option.
Roberts said: “An insurance call centre or claim centre can have 600 staff, as one of our partners has.
“It’s very hard to train 600 people, but if you give them access to our EV Knowledge Hub, that becomes much easier for them to manage.”
An interesting aspect for insurers, offered within the training, is how to handle a total loss.
Disposal of batteries is a major problem, and access to training is also provided in this respect.
Roberts said: “I do see from repairing our own fleet that the repair durations are falling. Parts availability has improved.
“I still think the number of body shops, especially independents, that are able to make the investment to repair EVs is restricting progress to some extent.
“It’s important to remember that it’s not just about the repair. It’s about what happens when the vehicle is a total loss because there is damage to the battery.
“Disposal of the vehicle is causing a significant problem in the market. Today it’s very hard to determine the residual values on EVs,” Roberts explained.
“More and more EVs which have been damaged are being written off because there is uncertainty about what the vehicle will be worth in three years’ time. We are seeing a higher number of write-offs for EV than we are for ICE.”
Insurers’ supply chain partners can also play a big role in firming up the EV proposition.
Bodyshops can also take advantage of help offered by replacement vehicle supply partners.
When a bodyshop is contracted by its insurer partner to provide an EV replacement, it can be costly for the bodyshop to acquire the EV and uphold maintenance.
Europcar offers bodyshops long-term rental of electric vehicles with a commitment of as little as 84 days, with the option to return the vehicle after 28 days for an additional fee.
Roberts said: “It is about helping bodyshops meet any surge in demand. What a bodyshop doesn’t want to do is ‘fleet up’ for the winter peak, and not have the ability to fleet back down when the summer comes. Vehicle rental is almost like having surge management.”
Although the solutions are out there, LeSauteur believes the turning point will arrive when insurers start appointing specialist EV roles. At the least, there should be individuals within each insurer responsible for EV.
He said: “Who is actually taking the lead on it and who is responsible for it? Who’s going to own it?
“Insurers need a person who will put their hand up and say they want to grow into this space, get behind it and use all the available help and support. No-one is doing that at the moment.”
Conclusion
Challenges such as sourcing parts, acquiring specialist labour and disposal issues for electric vehicles have ratcheted up costs for insurers, resulting in a softened appetite among certain players.
However, it is clear from the Insurance Post/Europcar survey that insurance professionals believe EV is the future and a major issue right now.
It is projected there will be 11 million EVs on the road by 2040, accelerated by the government deadline on banning the sale of new cars powered by fossil fuels.
Insurers can prepare themselves for the rise in EV usage.
The time for insurers to futureproof their business is now. Those insurers preparing too late will find themselves at a competitive disadvantage.
Solutions include taking up the specialist support and training on offer, expanding their replacement vehicle supply network, and seeking out those providers that offer the best customer outcome, appointing specialist roles.
Continued investment is essential.
Supply chain partners, such as bodyshops, can take advantage as well, by working with those that will help them manage EV fleet demand with efficiency.
A sign of the EV insurance market’s maturity is the discussion around its possible inclusion with the GTA Vehicle and Rates Tariff.
EV inclusion would increase transparency for credit hire companies and process firms, while improving insurers’ ability to settle claims.
The time for insurers to futureproof their business is now. Those insurers preparing too late will find themselves at a competitive disadvantage.
This could lead to a polarised marketplace where certain insurers simply choose not to underwrite EV.
This will mean losing a significant market share, because EV usage is set to climb steeply. Those acting now will reap the rewards in future years.
Europcar comment: Making like-for-like EV replacement vehicles a reality
This report by Insurance Post illustrates the complexities facing the insurance sector in embracing electric vehicles. Some insurers see this as an opportunity, others a challenge. Some don’t believe it currently presents either opportunity or risk.
However, insurers with a clear view of the future need to consider how fit for purpose their supply chain is to respond to the more diverse and increasingly electric vehicle parc. The variety and cost of electric vehicles also makes credit hire replacement more challenging than ever.
It’s not practical for a bodyshop to hold a permanent fleet that can meet every possible customer requirement. Yet that means when a like-for-like cannot be offered, the insurer may need to intervene, with the consequence of impacting the claims journey and customer experience.
To ensure continuity of service, irrespective of whether a hire is being provided as ‘credit’ or ‘direct hire’, partnering with a rental provider with a strong national network and comprehensive fleet, including electric, makes sense.
Whether providing vehicles on long-term hire for a bodyshop to manage customer requirements from their site, providing top-up fleet using daily rental, or the rental company ring-fencing specific vehicle groups at strategic locations, a rental partner that understands the specific needs of the insurance sector can manage the end-to-end mobility requirement.
Europcar has tailored its solutions for the insurance sector, and insurers should not underestimate the impact this can have on a positive customer journey.
We are working hard to provide insurers with a replacement vehicle solution that is fit for purpose for an electric future. A dedicated team and call centre mean claims handlers can manage their customer expectations smoothly and efficiently.
Our Delivery & Collection service smoothes the customer journey to replacement vehicle. And our electric fleet, supported by an increasingly electrified network, is growing all the time to offer real choice for like-for-like EV replacement.
Among the car additions already available for insurers to access for EV policyholders while their vehicle is off the road are the recently launched Jeep Avenger and the Skoda Enyaq. These new EV models come alongside the already well-established fleet of Tesla Model 3s, Mercedes-Benz EQ models and MG4 available from Europcar locations across the UK.
To find out more about Europcar insurance solutions visit europcar.co.uk/business
1 The Society of Motor Manufacturers and Traders, ‘UK Reaches million EV milestone as new car market grows’, 5/2/24 UK reaches million EV milestone as new car market grows - SMMT
2 Accenture, ‘11 million electric vehicles forecast to hit UK roads by 2040....’ 9/5/2019 11 million electric vehicles forecast to hit UK roads by 2040 creating a £150 billion opportunity for utilities (accenture.co.uk)
3 Financial Times, ‘Surging UK insurance premiums for electric vehicles post risk to widespread adoption’, 25/10/23 Surging UK premiums for electric vehicle insurance pose risk to widespread adoption (ft.com)
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