EVs and Insurance: What You Need to Know for the Road Ahead

Thank you to our Team member, Huy Lao, for preparing the content for this post!

In Alberta, the implications of electric vehicles (EV’s) on insurance are multifaceted, reflecting both national trends and local market dynamics.

First, a little background about EV’s…

Electric Vehicle (EV) maintenance has several benefits compared to traditional internal combustion engine (ICE) vehicles. Here’s a detailed look at some of the key advantages:

• EVs have simpler mechanics with fewer parts that can wear out or fail.
• There’s no need for oil changes, spark plugs, timing belts, or exhaust systems.
• The Regenerative Braking system reduces wear on brake pads and rotors by converting kinetic energy into electrical energy, significantly extending their lifespan.
• They have extended service intervals and less frequent maintenance is required because of the reduced number of components.
• Modern EVs often come equipped with systems that monitor battery health, motor efficiency, and other components.
• This data can predict when maintenance is needed, avoiding unexpected breakdowns.
• Simplicity in repairs with easier diagnostics, with less complexity, diagnosing fuel efficiency and cost savings.
• There are no fuel system maintenance because there’s no need to maintain fuel injectors, fuel pumps, or carburetors, which can be costly.

Here is my personal example of savings comparing electricity costs to charge my EV compared to a gas-powered vehicle for the last month.  I don’t drive that much (approximately 600 km per month on the Tesla).  For a person who drives more, these numbers can be much more significant.

Premium Costs

• EVs generally have higher insurance costs due to the elevated price of vehicles and the costly nature of repairs due to insurance claims. For example, repairing damage from an accident might be significantly more expensive due to the specialized nature of EV components like batteries.
• In my personal experience, my Tesla was about 40% higher to insure compared to my comparable gas vehicle.  Most of the insurance premium costs and the higher original EV purchase price can be offset by fuel and maintenance savings.

Repair and Replacement Cost due to insurance claims

• The repair of EVs, particularly battery replacements, can be extremely costly. This is partly because of the high cost of lithium-ion batteries and the scarcity of skilled technicians capable of handling such repairs. This factor directly affects insurance premiums as insurers must cover higher potential claim costs.

Insurance Coverage Specifics

• EV insurance might include specific coverages not found in standard policies, such as protection for home charging stations or emergency towing to charging stations if the vehicle runs out of power. (https://www.aviva.ca/en/find-insurance/vehicle/electric-vehicle-insurance/)

Green Discounts

• Some insurance companies offer what’s known as a “Green Vehicle Discount” for insuring an EV, which can mitigate some of the premium increases. However, these discounts vary by provider and might not fully offset the higher base rates. (https://www.intact.ca/en/blog/electric-vehicle-101-taking-care-of-your-car)

Regulatory Environment

•  Alberta’s insurance rates are regulated by the Automobile Insurance Rate Board (AIRB), which means any significant rate adjustments for EVs would need approval. This regulatory oversight can help moderate premium increases but also might slow the adaptation of insurance products specifically tailored for EVs.(https://www.alberta.ca/automobile-insurance-reform)

Market Penetration and Data

• Currently, Alberta has one of the lowest EV per capita rates among Canada’s larger provinces, which might mean insurers have less data on EV claims and repair costs, potentially leading to higher premiums due to perceived higher risk.

Future Trends

• As EV adoption grows, there’s an expectation that insurance premiums might rise to reflect the true cost of claims, similar to trends observed in other regions with higher EV penetration. This could be gradual due to regulatory controls but is anticipated as EV numbers increase.(https://globalnews.ca/news/10296504/ev-insurance-rates-canada/)

Insurance Product Evolution:

• Insurance companies are slowly adapting by offering more tailored products for EVs, including considering the environmental benefits of EVs in policy offerings or discounts. However, the evolution of these products is ongoing as the market for EVs in Alberta expands.

These implications show that while EVs bring benefits, they also introduce new challenges and costs within the insurance sector in Alberta, particularly in terms of premiums, repair considerations, and insurance product development. Consumers in Alberta looking into EVs should be prepared for potentially higher insurance costs while also being aware of the discounts and incentives that might be available to offset these expenses.

For more information on how an EV could impact your insurance premiums, contact us to speak to one of our friendly and knowledgeable Brokers today!

Your Costen Insurance Team