As firms like Tesla, Ather, Ola, Hyundai, Mahindra, Mercedes Benz, Audi, Hyundai, BMW, and Renault continue to develop ground-breaking electric vehicles, the adage “Electric cars are the future” is coming closer to fruition every day.
The Advent of EVs
EVs are eco-friendly, noise less, have superior pickup, and most importantly very low per kilometer cost (mileage) compared to ICEs (internal combustion engine). They are also packed with very high end software to control every function of the vehicle using digital technologies giving much superior experience.
However, the journey of the EV from a rough and tumble alternative to the norm has not been smooth. The first electric vehicle in India was a three-wheeler created by Scooter’s India Pvt Ltd in 1996. BHEL also developed an eighteen-seater electric bus in 2000 to operate within the Delhi city limits but it did not catch the public’s imagination or the investor’s interest. In addition, a distinct lack of power infrastructure also hampered the acceptance of electric vehicles
Come 2007, Hero Cycles launched a series of bikes in partnership with UK-based ULTRA Motor. These electric bikes or e-bikes became popular among other firms such as TVS Motor and Hero Electric, who also started to manufacture and sell e-bikes. The popularity of these vehicles was demonstrated in 2016-17 when about 500000 e-rickshaws were sold in India.
Most of these early vehicles were lead acid batteries which are bulky and have poor range and pickup. We are now moving to lithium ion batteries which have long range, faster pickup, and fast recharge. This gradual but significant push for e-vehicles is supported by the government introducing the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) scheme in 2015 and the FAME II scheme in 2019 to encourage electric and hybrid vehicle purchase by providing financial assistance and supporting the electrification of public and shared transportation.
Fast forward to 2022, companies are aggressively developing and introducing affordable electric vehicles to dispel the notion that EVs are expensive. As of 2021, electric vehicles contribute to only 1% of the overall registrations in India; however, the government plans to increase this number to 25% by 2024.
EVs and Insurance
As the cost of ownership and repair costs for EVs continue to decline, insurance rates have remained at a premium. The reasons for this are multiple.
> One of the critical factors why car insurance premiums are higher for EVs is that the cost of producing an EV is higher than their petrol or diesel-powered counterparts. The higher the cost of a vehicle, the higher the insured declared value (IDV), and thus the increased premium.
> In addition, modern electric cars are equipped with a lithium-ion battery, which accounts for more than 40-50% of the cost of the car. This also is another reason for high insurance premiums.
> Electric cars also need a high level of maintenance due to the complex car parts. Repairing such vehicles can only be done by highly skilled mechanics and the current talent pool is relatively low compared to conventional car mechanics.
While the Comprehensive Car Insurance policy premium can change from insurer to insurer, the premium for the third-party car Insurance policy is fixed by the Insurance Regulatory and Development Authority of India (IRDAI), the industry regulator. Compared to petrol or diesel-powered vehicles, IRDAI has introduced third-party motor insurance rates for EVs at a 15% discount to promote the use of eco-friendly EVs. Third-party insurance is mandatory, and it provides financial protection against death, bodily injury and/or property damage of a third party caused by accidents and even if high-voltage EV batteries catch fire. For instance, if the EV catches fire while charging, the damage from the fire will be covered under the own-damage policy. However, this protection is offered only if one uses the EV manufacturer’s charger or an original equipment manufacturer (OEM)-approved charger. Keeping abreast of such details is crucial to understanding if an insurance policy is apt when buying an EV.
However, there are various ways in which EV insurance policies can be curated and made affordable. For instance, buying a policy online allows one to compare policies, add-ons, and services of different insurers in the market, and the experience is hassle-free and paperless. One can also choose the voluntary deductible option. A voluntary deductible is a fixed amount that one chooses to pay during claims. By picking a voluntary deductible limit, the insurer’s claim liability decreases, and the buyer is provided with a discount on the premium. The introduction of add-on covers will also go a long way in reducing out-of-pocket expenses as they insure only specific parts of the EV.
Although EVs are fast becoming affordable with technological advancements, they are still relatively expensive to insure. Incentivising owning an EV and reducing the purchase costs will lead to a decrease in insurance costs and both should be prioritized. However, regardless of the cost, EV insurance reduces financial implications in cases of third-party liabilities or damages. Therefore, it is imperative that your EV is insured at all times to avoid unforeseen financial losses.
The author is Piyush Ranjan, Chief Technology Officer Coverstack (Coverfox Group)
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