Insurance Costs Could Cripple European Electric Car Sales


European electric car sales growth will be hit by zooming insurance costs and expiring subsidies, while news of an out-of-control MG EV might spook some would-be buyers.

Some positive claims are melting away as the electric car revolution gains momentum. Enthusiasts asserted that prices would fall quickly, and new battery electric vehicles (BEVs) would be available to average earners. That’s not happened yet, with most prices starting at around €30,000 after tax ($32,000), about twice the price of similar new combustion vehicles. As sales accelerate exponentially, the cost of scarce battery materials will likely go up, not down. Insurance will be much cheaper because electric cars have fewer moving parts and are cheaper to assemble? That’s another promise which has bitten the dust.

According to moneyexpert.com, electric car insurance is more expensive because of pricey parts that aren’t readily available. A much bigger market for parts for combustion engine vehicles brings prices down. There are fewer mechanics specialising in BEVs.

The Motor Easy insurance company said the perception BEVs have fewer moving parts and less can go wrong hasn’t happened. The failure rate is roughly the same. Increased weight puts suspension and braking components under more significant strain in a BEV.

The British media is awash with horror stories about the latest insurance premiums. One Tesla Model Y owner was shocked to be asked to pay £5,000 ($6,000) for annual insurance, up from £1,000 ($1,200) the previous year.

Some insurers are getting nervous about the possible scale of liabilities. John Lewis Financial Services has paused insuring electric vehicles while its underwriter analyses risks and costs.

The cost of replacing batteries is causing insurance companies much angst. Batteries are usually mounted underneath the passenger compartment and cover a huge area. This makes them more vulnerable to damage, and their sensitivity adds to the problem. What would be a minor shunt for an internal combustion engine (ICE) powered vehicle can be catastrophic for an electric one.

A lack of engineering expertise often means the battery has to be written off. Batteries can cost up to half the purchase price of the car. A Jaguar I-Pace BEV is priced close to £70,000 ($86,000) in Britain after tax and a replacement battery will cost about £35,000.

Meanwhile, BEV car sales have boomed in Western Europe this year. According to Schmidt Automotive research, the 12-month rolling total hit just under 2 million through August, compared with 1.53 million in all of 2022. But proprietor Matt Schmidt points out that in August, Germany accounted for 45.3% of the total, as buyers rushed to take advantage of government subsidies before they expired in September. Germany, Europe’s biggest car market usually takes up to a third of all sales.

“There won’t be a gentle tail-off in deliveries during the next months, but more of a brutal awakening in the final third of the year,” Schmidt said.

Schmidt retains his forecast that the acceleration will resume, with Westen European sales hitting 2.7 million in 2025, and 9.2 million in 2030.

And there was the electric car, said to have a mind of its own, summed up by this reference in the Daily Mail, which never knowingly undersells a story.

“I was kidnapped by my runaway electric car: Terrified motorist, 53, reveals his new £30,000 MG ZS EV ‘began driving itself’ after suffering ‘catastrophic malfunction’ – forcing him to dial 999 and crash it into a police van to get it to stop,” the Mail said.

The reasons for the malfunction have not yet been established, and it might well be a problem that could have happened to any car, BEV or ICE.

But insurance costs threaten the emerging BEV market.

Mark Fry, engineering research manager at automotive risk intelligence company Thatcham Research, said various factors contribute to rising insurance rates.

“Insurers are reacting to a combination of factors. This could include the rising cost of parts and the need for a skilled workforce to carry out repairs. With any new technology we need to ensure financial sustainability. We are keen to encourage repair around the battery rather than replacement,” Fry said in an interview.

“We are looking at how batteries are fitted and packaged. Manufacturers have been working on tight deadlines to get electric cars to the market. While perhaps they are not designed as we would like, there are big challenges to overcome to get them on time to the market,” Fry said.

This isn’t just a European problem. Thatcham is liaising with partners across the world, including the U.S., Fry said.

Thatcham published a report earlier this year with the British government agency Innovate U.K., which said there are several significant challenges to BEVs, apart from the battery. These would be significant blockers to BEV adoption unless dealt with quickly.

“BEV incident claims are currently about 25.5% more expensive than their ICE equivalents and can take some 14% longer to repair. Road collisions involving a BEV can be catastrophic for the vehicle as understanding and competence in rectifying the damage continues to develop,” the report said.

“The most significant challenges originate from the high voltage battery. Although there is a relatively small number of BEVs in the market, there is an understandable but concerning lack of affordable or available repair solutions and post-accident diagnostics,” the report said.

Thatcham Research data showed that in 2022, 9,400 vehicles were potentially involved in collisions damaging the battery in the U.K. This is estimated to reach up to 260,000 vehicles annually by 2035, and without meaningful change claims will continue to rise disproportionately.

“Much of the motor insurance industry is yet to adapt to mass BEV adoption challenges, and the implications remain unquantified on repair capacity, training and skills, cost, and the lifetime sustainability of BEVs. This lack of awareness means many BEVs are often deemed irreparable, leading to premature write-offs because of high battery cost and the lack of value the U.K. ecosystem can recover from them,” Thatcham said.

Some believe BEVs are more prone to fire risk than ICE ones, but the data is inconclusive. However, BEVS create special risks when they do catch fire. They can burn for days and often reignite when the fire seems to have been beaten. Fire-fighters are now trained that total immersion in a swimming pool-like structure may be the only way to be sure it’s out.

British government guidelines insist damaged BEVs awaiting repair should be quarantined in a 15-yard zone. The increased weight of BEVs adds to problems. Repairers need to buy pricey equipment. This all adds to cost, according to the report.

Fry said Thatcham is currently looking at problems around so-called “quarantining”, the process of assessing the dangers after a BEV has been involved in a collision.

“First responders need to assess if there’s a possibility a vehicle might catch fire and how long quarantining might be required. An initial assessment can be difficult on a squally wet and windy motorway,” Fry said.



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