The future is electric
It may have been barely believable only a decade ago, but several vehicle manufacturers have announced they will soon be going all-in on battery-electric vehicles (EVs).
Brands such as Volvo, Mini and Jaguar have responded to the introduction of strict new environmental laws in many overseas markets by abandoning petrol and diesel engines in favour of low or zero-emission engines1.
The European Union is one of the regions leading the charge, with member countries such as Sweden and Germany moving to ban the sale of internal combustion engines altogether by 2030. Similarly, the Biden administration has signaled its intention to have 40 per cent or more of vehicles sold in the United States to be electric by the end of the decade2.
Implications for insurance
Australia can’t claim to have anything like the fuel efficiency standards that the EU has put in place. This factor, and the lack of credible government-led financial incentives to reduce the upfront price of EVs, means Australia has become a laggard when it comes to EV adoption3.
Electric vehicles account for a paltry 0.7 per cent of total Australian car sales, compared with 10.7 per cent in the UK (2020 figures)3.
As for the buying public, there still remains some anxiety about the range offered by EVs (with lack of accessibility to charging infrastructure being a factor) and lingering doubts about the running costs of an EV versus a petrol or diesel-powered vehicle.
However, there are signs that change is underway.
Alexandra Kelly, Policy Manager at the Electric Vehicle Council (EVC), says state governments are starting to implement incentives for EV ownership and consumers are becoming wise to the strong value equation offered by EVs. She acknowledges that insurance premiums currently remain higher for EVs than for vehicles powered by internal combustion engines, but says premiums can only go down as demand for EVs increases.
“There’s currently a lack of understanding about the technology in EVs that is contributing to keeping insurance premiums higher,” Kelly says. “The cost of EVs is very closely tied to battery price, so as the price of lithium decreases, so too will the price of EVs.”
There’s also the novelty factor for the insurance sector. “A more expensive vehicle will have higher premiums anyway, but the reason we’re seeing higher prices for EVs is because they’re something new for the industry,” Kelly says.
She explains that the drivetrain of an EV has approximately 20 moving parts compared to an internal combustion vehicle’s 2000 moving parts. The challenge, says Kelly, is to think of EVs less as a car in the traditional sense and more as a computer on wheels.
“Insurers are going to want to cover themselves if they’re insuring a product they’re unfamiliar with. But you’d expect that as insurers become more familiar with the product, premiums will come down because there’s less likelihood of needing to replace anything inside the EV.”
As more car buyers opt to go electric, there will also be ramifications for dealership service departments. There will be no oil filters to change, no timings belts to adjust. Manufacturers indicate transmissions will be ‘sealed for life’4.
Demand for EVs on the rise
One of the barriers to uptake of EVs here in Australia has been availability. Buyers here simply haven’t had the same choice as that offered to European buyers, particularly in the sub-$70k category5.
The introduction of financial incentives should help increase demand for EVs here in Australia, as will a greater understanding of the cost advantages offered by an EV over its lifetime. As the number of EVs in Australia increases, dealerships will step up their service and repair capability – and insurance premiums will reflect that improvement.
“The increased attention state governments have given to EV policy in the last 12 months means we can expect to see a strong number of product launches across the EV market in the not-too-distant future,” says the EVC’s Alexandra Kelly.
“As consumers see and understand the commitment of car manufacturers to full electrification by 2030/2035, they’ll see that this is a technology they need to get behind.”
This article has been prepared by Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL234708 (“Allianz”). Information contained in this article is accurate as at 30 August 2021 and may be subject to change. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Any opinions expressed constitute our views at the time of the issue and are subject to change. Neither Allianz, nor its employees or directors give any warranty of accuracy or accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in this article.
1 Car brands going electric
2 Biden seeking pledge for 40% of U.S. sales to be EVs by 2030
3 New electric car sales figures show Australia stalled with hazards flashing
4 Your service department in 2030
5 Australians want to buy electric cars, but car makers say government policy blocks supply