Despite OLA EV scooter recalls, Adarsh Agarwal of Digit Insurance says EV premiums may fall

Any lessons from the electric vehicle fires that are making the headlines?Manufacturers such as Okinawa, Pure EV and Ola have recalled 7,000 two-wheelers, which shows that they are stepping in to ensure that human lives are saved and a crisis is averted, especially when temperatures rise.

The prevention mechanism would ensure safety of both the vehicle and the buyers and reinforce confidence (in EVs). As a result of these incidents, manufacturers who were not opting for liability insurance policies are now seeking insurance protection as they have to bear the battery, communication and logistics costs of recalling vehicles. So the frequency of enquiries for liability insurance policies by electric vehicle manufacturers has increased significantly.

They have assured us that with adequate quality checks and testing, such instances can be reduced.

Would these mishaps have an impact on the premium for EV buyers? Such stray incidents will not impact the pricing philosophy of electric vehicles. In the past year, around 500,000 vehicles have been sold. Fire in 2-5 vehicles indicates a very low probability of damage. Had these incidents been in the range of 50-100, then the pricing of the electric vehicle insurance would have been different.

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As the incidents are few, it is unlikely that the premium increases.

Would the allied costs for vehicle recall be covered under the existing active insurance policy? Is the policyholder mandated to convey the details of recalls and part replacement at the time of renewal? The recall expenses will not be covered under insurance. These would have to be borne by the dealer, manufacturer or the consumer.

If there is no change in the value of the vehicle – which may take place due to higher-range battery insertion etc. – then the policyholder need not inform the insurance company once the vehicle has been refitted with a battery through the manufacturer-driven process.

If there is a change in the insurer declared value (IDV), the same would have to be endorsed in the policy.

What if a vehicle owner fails to opt for the recall facility? All vehicle insurance policies have a clause asking vehicle owners to take good care of the vehicle and avoid negligence. So, if the behaviour is not reasonable and the faulty part of the vehicle hasn’t been repaired or they fail to lock the vehicle (negligence in any form that allows damage or theft), then insurance claims might be difficult for such owners. There could be sub-standard settlement of the claims.

Premium for third-party coverage of electric vehicles is cheaper as opposed to petrol and diesel variants of the same vehicle. Even though third-party insurance is linked to damage to an external person or vehicle, why is there a difference in the premium based on the engine type? Premium for third-party coverage is 10-15% less for long-term policies (2-5 years) for electric vehicles as compared to petrol and diesel cars.

The reason it is cheaper is because electric vehicles are usually used within the cities due to the battery capacity. Probability of accidents is higher on highway-use vehicles and EVs are usually city-use vehicles.

Additionally, the power of EVs is lower, hence even if an EV meets with an accident, in most of the scenarios the severity of the accident and intensity of damage would be lower.

Due to the low data availability, currently it is assumed that ICE (internal combustion engine) vehicles have a higher probability of high-way driving than EV and as we gather more data we would know whether the assumption holds correct.

Does the data collection indicate any revision in own-damage cover premium for EVs? Premium for EVs is likely to be less compared to ICE four- and two-wheelers because of a few reasons.

The socio-economic profile of people buying ICE vehicles would be different as against those purchasing EVs, who would be educated and seeking luxury and comfort. This is because the cost of buying an electric vehicle will be higher. So, a Honda Activa would be available in Rs 65,000, but an electric two-wheeler would cost upward of Rs 1 lakh. This profile of a typical EV vehicle buyer also indicates that it would be used sparingly and driven more carefully. We don’t see too many incidents of rash driving in an EV 2-wheeler because of its inherent speed restrictions.

From the third-party premium perspective, EVs are 10% less risky than ICE vehicles. Maybe after higher data collection, we would be able to ascertain whether EVs are 25-50% less risky vis-à-vis other fuel variants.

To understand, own-damage insurance coverage, even one year’s worth of data would be enough, but the third-party premium is determined by both IRDA (Insurance Regulatory and Development Authority) and the transport ministry and hence for a credible data trend, at least three to four years of research would be required.

As the operating costs of EVs are lower than ICE vehicles, electric vehicle adoption is faster in public transport and commercial vehicles and over a period, the costs of insurance will change the pricing of owning an electric vehicle.

There are external modifications being done to vehicles through non-authorised car and bike workshops on the street. How would insurance validity be affected if the fuel variant is converted? As per claims reporting under our portfolio, there are fewer conversions from ICE to EV. We have seen conversion from ICE to CNG and LPG (compressed natural gas and liquefied petroleum gas).

But if vehicle modification increases the probability of accidents and an insurance company is able to identify the faulty part, then the damage would not be covered. For instance, if the braking systems fail and that has led to an accident and the insurance company is able to prove it, then the claim will not be paid. If the insurance company is not able to prove that the damage resulted from the replaced part, then the claims would be paid as usual.

Modifications can be done at any workshop, and it is difficult to monitor these and identify the faulty part.