Spike In EV Infrastructure In India To Boost Demand For EV Insurance : Adarsh Agarwal

It is obvious to numerous that the future of mobility will be formed in enormous part by electric vehicles (EVs). The Indian EV industry is as yet in a somewhat beginning stage.

In an interview with BW BusinessWorld, Adarsh Agarwal, Chief Distribution Officer of Corporate Business, Digit Insurance shared his views.

What opportunities can EVs bring in the insurance space?  

There is an influx of new manufacturers (OEMs) in addition to existing automobile companies in the electric vehicles segment. Given the benefits that EVs offer, we are seeing a host of innovation across vehicle segments including heavy-duty vehicles such as trucks and buses. This year, EV sales in India is expected to hit 10 lakh units. The central and state governments too are incentivising the use of EVs with an aim to build a cleaner and greener transportation system. These developments are likely to result in a spike in EV sales in the coming years, resulting in an increased demand for EV insurance.

While the space has early adopters, the number of EVs on Indian roads is still small when compared to non-electric vehicles. Lack of an efficient charging infrastructure is a big reason for this. This means the propensity of claims is low, in terms of both claim size as well as claim value.  However, with the charging infrastructure improving gradually and the government taking up critical steps such as adopting the battery swapping scheme, demand for EVs will only grow. While EVs are currently covered under traditional motor insurance products, insurers definitely have a huge opportunity. As the EV market develops further, we may see companies offering specialized EV insurance products as well.

Is it mandatory for all electric vehicles to have a third-party insurance?

No, it is not mandatory for all electrical vehicles to be insured. Electrical vehicles with a maximum speed limit of 25 kilometers per hour and a battery capacity of 250 watts are not categorised as motor vehicles under The Motor Vehicle Act, 1988. Such vehicles do not require a mandatory third-party insurance.

Having said that, from the vehicle owner’s perspective, it is always better to have third-party insurance. The rising number of road accidents has made insurance essential because vehicle owners could face huge third-party liability in case of an unfortunate incident.

How easy or difficult is it to get your EV insured in India today?

In order to comprehend this better, we need to bear in mind that there are two types of insurance covers available for EVs in India. One is the traditional motor insurance policy which covers both own damage as well as third-party liability. The other type of cover is for those EVs which do not require a mandatory third-party insurance to ply on Indian roads. These low-end electric vehicles have a low speed and low battery capacity. For such vehicles, insurers offer an asset insurance cover which gets triggered in case of accidental damage or total loss.  

It is not difficult to insure an EV but one big concern in terms of availability of insurance is batteries. EV batteries account for 30-35 per cent of the vehicle’s total cost. Based on the design and make of the EV, a few of them could be prone to battery theft. This also depends on the geographical location as some regions are more prone to vehicle or battery theft. In such cases, availability of insurance could become a challenge. Even if insurance is available, it could attract a higher premium compared to other parts of the country or other types of EVs.

What are the main concerns that insurers have today when it comes to covering EVs?

Battery theft is one of the bigger challenges. Non-electric vehicles are also prone to battery theft, but EV batteries are more expensive. Considering this, and factors like geography and the design of the vehicle, insurers need to arrive at the right pricing. Secondly, EVs were traditionally associated with low power and low acceleration. As a result they reported fewer accidents and therefore, insurance was not mandatory. However, with increasing innovation and better tech, EVs are now more powerful and command higher acceleration. A few EVs may even have higher acceleration than non-electrical vehicles. This could increase the probability of accidents.

Depreciation of batteries is another critical element because battery makes for a huge part of the overall cost of the vehicle. For instance, if an insurer is insuring a two-year-old EV, arriving at the right value of the battery becomes critical. If not, the vehicle’s IDV (Insured's Declared Value) could be higher than the market value. On the other hand, if the battery is valued at a price lower than the market value, then the customer could be at a disadvantage. Further, repair costs too are dynamic and depend largely on the manufacturer. For instance, if a manufacturer imports a part of the vehicle, import duty or foreign exchange fluctuations may affect the repair costs of the EV. Insurers will need to take these factors into account while underwriting EVs.

Considering EVs are expensive, do you think insurers will eventually have to charge a higher premium?

In India, the EV space is still emerging and we have limited data to determine whether electric vehicles will be at a higher risk compared to non-electric vehicles, especially from an insurer’s point of view. However, while considering damages to the exteriors of a vehicle (for instance, doors or bumpers), risk on premiums and claims may not be significantly different than traditional non-electric vehicles.

Having said that, insurers will have to work towards making the pricing suitable to the underlying risks, based on assumptions from similar risks in the past in the same geography or across other geographies. Over time, as more data emerges, premiums are expected to get streamlined.

Are you planning to launch any specialised cover EV insurance?

At Digit, we identified EVs as a growth segment almost a year and half ago. We set up a dedicated team to focus on this sector and are constantly working towards improving our offerings based on demand and customer feedback.

Currently, Digit offers all types of motor insurance products to EVs such as a standalone third-party cover, a standalone own damage cover, and a bundled product (third party + own damage) for new vehicles. For EVs that do not require mandatory third-party insurance, we also offer a product called Asset Care, which is essentially an accidental damage protection cover for vehicles.