E20 rollout sparks insurance worries over mileage, engine damage; insurers say cover could be denied

E20 rollout sparks insurance worries over mileage, engine damage; insurers say cover may be denied

India’s push for greener fuels may be running into a roadblock, this time from the insurance sector, as some insurers have cautioned that they could reject claims if a vehicle’s engine fails after using E20 petrol in models not designed for it.

While policymakers hail ethanol blending as a win-win -- such as putting more money in farmers’ pockets, cutting crude oil imports, reducing government expenditure, and lowering emissions -- the rollout is proving contentious on the ground.

A Moneycontrol report earlier this month noted that, while the policy is environmentally driven, both automakers and consumers have voiced doubts about its compatibility with existing vehicles, particularly those not engineered to handle higher ethanol content.

Moreover, some insurers have recently clarified that they will not cover damages to E10-compliant vehicles operating on E20 fuel. E10 contains 10 percent ethanol blended with petrol, while E20 doubles the ethanol content to 20 percent, which can affect engines not designed for it.

On August 8, 2025, motor insurer ACKO publicly stated that using the wrong fuel could void insurance claims. Responding to a query on X about whether it would cover damage to an E10-compliant vehicle running on E20, ACKO said, “In case of engine failure due to incorrect fuel usage, the claim would not be admissible. This falls under gross negligence as per our policy terms.”

E20, a blend of 80 percent petrol and 20 percent ethanol, has been gradually introduced at select petrol pumps nationwide over the past year under the government’s ethanol blending programme. The Centre aims for nationwide availability by 2025–26, advancing its earlier 2030 target.

On July 24, Petroleum and Natural Gas Minister Hardeep Singh Puri said ethanol blending in petrol had bolstered India’s energy security and delivered significant environmental benefits. In early August, Union Minister Nitin Gadkari reinforced that message, saying, “Show me one car in the country that has faced an issue because of 20 percent ethanol-blended petrol. There is no example of any car facing issues due to ethanol-blended petrol.”

However, numerous automobile manufacturers and vehicle owners have publicly cautioned about potential risks.

Mileage drops, technical hurdles

A senior general insurance executive, speaking on condition of anonymity, explained, “What directly impacts fuel efficiency is the fact that ethanol burns cleaner than petrol, but it also produces less energy. Pure ethanol generates about 30 percent less energy than petrol, meaning you get less power for the same amount of fuel, which in turn reduces mileage.”

He added that the insurance sector will need to “wait and watch” how the situation develops.

A LocalCircles survey found that petrol vehicles running on E20 reported mileage drops of over 10 percent. Beyond fuel economy, prolonged use of E20 in non-compliant vehicles can cause mechanical damage, the survey noted.

Because ethanol absorbs moisture from the air, it can cause “phase separation” in fuel tanks, where water-laden ethanol settles at the bottom. This can corrode metal components and cause rust, the report added.

Another insurance executive pointed out that rubber parts such as fuel lines, seals, and gaskets are especially vulnerable. Ethanol can make rubber soften, swell, become brittle, or crack, with resistance varying by material type. E10 and older vehicles are most at risk, as most of the existing fleet is E10-compliant.

E20-compliant vehicles, by contrast, come with ethanol-tolerant coatings on key parts like fuel lines, tanks, and injectors, and today’s E20 fuel includes corrosion inhibitors. Even so, these models still require periodic replacement of rubber gaskets and hoses.

Ethanol blends also require a different air–fuel mix for proper combustion. In engines not designed for higher ethanol content, E20 can make them run “too lean”, according to the executive, with more air and less fuel, leading to overheating, potential head gasket damage, and serious engine wear.

E10-compliant vehicles typically include most cars sold in India before 2023, such as the 2018 Maruti Suzuki Swift or the 2019 Hyundai i20. Their fuel systems, gaskets, seals, and engine calibration are tuned for lower ethanol content.

E20-compliant vehicles, on the other hand, are engineered to handle petrol with up to 20 percent ethanol. Examples include newer models like the 2024 Honda City or the 2023 Toyota Hyryder.

Insurance grey areas

For many vehicle owners, the most pressing concern seems to be whether their insurance will cover E20-related damage.

The “Engine Protection Plus” add-on in motor policies covers damage to the engine, differential, and transmission components, including from hydrostatic lock (water ingress into the cylinders) and oil leakage.

However, according to another senior general insurance executive, it is unlikely to cover damage from incorrect fuel usage.

In practice, even if an oil leak leads to engine seizure, insurers could reject claims if the root cause is found to be running E20 in an E10 vehicle.

India’s ethanol blending programme began in 2006 with 5 percent ethanol. The National Policy on Biofuels, announced in 2010, aimed for 20 percent ethanol in petrol by 2017, a target that was missed mainly because of supply constraints, pricing issues, and infrastructure gaps.
At the time, India’s ethanol production capacity was too limited to meet demand.

The deadline was later revised to 2025-26, and this time India appears on track.