Insuring the Climate Transition: EVs Are The Future. How Will That Change Commercial Auto Insurance?
Insurers, start your engines. Electric vehicle uptake is on the rise — and it’s only going to accelerate.
While the move is necessary in the fight against global climate change, some insurers are pondering how the transition to EVs will affect personal and commercial auto lines. On the commercial side, fears over battery fires, increased accident risk and cyber attacks are common.
EVs vs. Gas-Powered Vehicles
Though gas and electric-powered vehicles share a number of similarities, there are a few concerns, unique to EVs that insurers are watching.
“There are different risks than a combustion engine risk, which are better understood by the insurance marketplace,” said Stephen R. Hackenburg, U.S. national casualty practice leader at Aon.
“While both types of vehicles can be subject to battery fires, the make-up of the electric-powered batteries may react differently resulting in variations in damage,” said Sandee Perfetto, senior director, personal lines core products and underwriting solutions at Verisk.
The good news for insurers? Despite these additional risks electric vehicles may turn out to be safer than those with gas-powered engines. EV batteries have a .03% chance of igniting compared to a 1.5% chance for their gas-powered counterparts, CNBC reported.
“Electric motors are simpler than a combustion engine,” Hackenburg said. “In some ways you could argue that electric vehicles are less prone to have fewer risks associated from a product standpoint than a combustion engine.”
Some insurers worry that the quiet hum of electric vehicles will create additional liability risks as walkers or joggers may not hear an approaching car before it’s too late.
“Another consideration is the quietness of electric vehicles compared to gas-powered vehicles, which could lead to increased risks for pedestrians,” Perfetto said.
Outside of the vehicles themselves, Hackenburg is concerned about whether electric grids across the U.S. can withstand thousands of commercial vehicles — or even just suburban cars — that will need charging. According to a May report from Reuters, it could take more than $2 trillion of investments to get U.S. power grids ready for the demands of electric vehicles.
“Without a massive improvement in the electrical grid infrastructure, I’m very skeptical that a scenario with all electric vehicles would work,” Hackenburg said.
Cyber Risks Abound
Insurers are also concerned about the cyber risks they may pose. Like most new cars and trucks, EVs have connected car technologies like wifi, data sharing and semi-autonomous systems. The fear is these systems could be hacked into and used to take control over the car or to shut down safety systems.
“If you could somehow hack into a vehicle and affect the safety systems, or worse even cause a subsequent accident, that’s the kind of stuff that I think about and worry about,” Hackenburg said.
Hackers are already targeting electric and autonomous vehicles. Between 2018 and 2021, attacks on electric vehicles rose 225%, per reporting from Forbes.
“In general, an increased risk of a mass hacking event may exist with automated vehicles in general, not specifically electric vehicles. As vehicles are designed with more technology to provide additional safety and convenience, the opportunity for remote hacking increases,” Perfetto said.
Additionally, the charging systems found in electric vehicles could pose cybersecurity risks. Like other connected technologies and Internet of Things devices, electric vehicle charging stations are vulnerable to cyberattacks.
“Electric vehicles may be more vulnerable to cyber attacks than other vehicles with similar automation due to the connection to charging stations to replenish the batteries,” Perfetto said.
“Electric cars may be connected to public charging stations at malls and in public parking lots where data may be transferred.”
This fear is especially acute for commercial fleet owners. If someone hacks one charging station in a commercial fleet, they will likely be able to gain access to all the vehicles.
“The potential for mass hacking is likely to be greater if vehicles have the same technology across a fleet, as well as being vulnerable to the same charging stations and malware,” Perfetto said.
“Mass hacking affecting a fleet through common technology or charging stations could lead to increased property damage claims for auto dealers, garage owners and owners of large electric vehicle fleets.”
It’s worth noting that the risks of a mass hacking event are low. Electric and autonomous vehicle developers have considered the potential for mass hacking and hijacking events and have programmed the vehicles with safeguards to protect against these risks.
“The way that the systems are designed is there’s a very specific route for input for vehicle actuation, and if there’s a failure or a command that’s not recognized as coming from the right source, the vehicles go into limp mode; they stop. Worst-case scenario, you’re stopping on a roadway. You’re not turning it into a remote-controlled car,” Steve Miller, broker and innovation lead with the Insurance Office of America, told Risk & Insurance® in March.
Still, insurers will need to take into account the risks posed by electric and autonomous vehicle technologies. Commercial fleets will likely need to purchase cyber insurance policies to help protect against the exposure. And they’ll have to determine just who is responsible for damages if a hack occurs.
“Insurers need to consider the cyber exposures that exist and changes in theft or other losses that may occur because of cyber incidents,” Perfetto said.
“Non-automobile policies need to consider new exposures from charging stations. Will liability exposures traditionally under auto insurance shift to the vehicle manufacturers or parts suppliers?” &
Insuring the Climate Transition is a series that explores the critical role insurance will play in decarbonizing the economy and helping insureds adapt to the effects of global climate change. You can read other stories in the series here.