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Electric Vehicles and Electric Vehicle Charging: Risk and Opportunity

Electric Vehicles adoption provide present both risks and opportunities. Insurers remain cautious until greater data for underwriting purposes.
Closeup EV charger plugged into electric vehicle socket at charging station image from below view as progressive concept of eco-friendly car powered by sustainable and renewable energy.
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By Alistair Schuberth , 

Risk Partner, Marsh Advisory

14/06/2023 · 4-minute read

UK data shows that by September 2022, there were 1 million licensed plug-in vehicles (EV) in the UK. This equated to 2.5% of all licensed road using vehicles, up from 1.6% at the end of September 2021[1]. Additionally, the UK government currently plans to prohibit the sale of new internal combustion engine (ICE) vehicles in 2030[2].

What’s the issue?

  • EVs provide significant advantages, with benefits including:
  • Quieter engines reducing urban noise pollution.
  • Emit less emissions, though debates rage if they are truly ‘green’ bearing in mind the associated costs of mineral extraction and battery recycling.
  • Cheaper maintenance costs as simpler drive trains reduce opportunities for components to fail.
  • Cheaper running costs as electricity rates allow a cheaper cost per mile in comparison to diesel and petrol vehicles. EVs becomes even more economical where homeowners have access to solar charging for their vehicle[3]. 

What are the risks?

Electric vehicles commonly rely on lithium ion batteries to generate electrical power. However, when damaged or improperly manufactured these batteries can fail. Failure can raise the surrounding temperature and subsequently become the source of thermal runaway resulting in catastrophic fire damage to the vehicle – potentially also spreading to surrounding infrastructure and buildings[4]. As a result, damaged battery packs may lead insurers to write off otherwise perfectly suitable vehicles.

However, early data indicates that the risk of EV fires might be overstated. A study by AutoinsuranceEZ, based on data from the US’ National Transport Safety Board, indicates that this risk may actually be lower in EVs than in ICE[5]. Similarly, a recent study in Sweden[6] approximated the rate of fires in EVs compared to ICE at 1:20, suggesting ICE cars are 20 times more likely to catch fire. However, both studies contained a much smaller EV survey sample than ICE. Until EVs achieve greater adoption levels, it will not be possible to accurately compare like for like.

Action

In the short term, insurers will remain cautious regarding EVs until greater data becomes available to help refine underwriting models and fully understand all potential risks posed. Adopters can mitigate their risk by ensuring EV and associated charging infrastructure is located a suitable distance from premises or other combustible materials. Alternatively, they can erect fire segregation such as enclosures or buffering between vehicle charging locations and surrounding areas to prevent the spread of fire, in the unlikely event one breaks out. 

In the long term, it will require the co-operation of the insurance industry to review the available data and take a pragmatic view of the risks. This will prevent the imposition of unreasonable barriers to adoption via prohibitive insurance terms or conditions.

Additionally, manufacturers will hopefully improve battery technology. This may allow more protection against catastrophic failure, better fault detection, and the ability to repair or replace damaged battery packs.

 

[1] Vehicle licensing statistics: July to September 2022

[2] Government takes historic step towards net-zero with end of sale of new petrol and diesel cars by 2030

[3] EV vs ICE: Are Electric Cars Worth It?

[4] Explainer: Are lithium-ion batteries in EVs a fire hazard?

[5] Gas vs. Electric Car Fires [2023 Findings]

[6] Petrol and diesel cars 20 times more likely to catch fire than EVs (thedriven.io)

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