In the Era of Electric Vehicle Popularization, Car Insurance Premiums 'Fluctuate'

Visitors are exploring the latest electric vehicles at the '2021 Seoul Mobility Show' held in November last year.
[Image source=Yonhap News]

[Asia Economy Reporter Changhwan Lee] As the popularization of electric vehicles accelerates, there is a forecast that car insurance premiums may also rise. Electric vehicles are more expensive than internal combustion engine vehicles, resulting in higher repair costs, and the infrastructure is still less developed, leading to additional expenses.

According to the report "Current Status of Insurance Products Responding to the Spread of Electric Vehicles" published by the Korea Insurance Development Institute on the 14th, the domestic electric vehicle market size, which was around 55,000 units in 2018, grew to approximately 231,000 units as of last year.

The report predicted that the supply speed will accelerate further as domestic and foreign automobile companies expand the distribution of electric vehicles. This is expected to impact the automobile insurance market as well.

In the case of electric vehicles, parts are expensive, so repair costs are higher than those for internal combustion engine vehicles for the same damage. As of 2020, the loss ratio for electric vehicle own-damage coverage was 9.7 percentage points higher than that of internal combustion engine vehicles.

The average repair cost was 1.81 million KRW for internal combustion engine vehicles, while it was 2.37 million KRW for electric vehicles, about 31% higher. Among these, parts costs were 1.46 million KRW for electric vehicles and 970,000 KRW for internal combustion engine vehicles, making electric vehicle parts costs about 50% higher.

As the distribution of electric vehicles increases significantly, insurance companies are changing the structure of automobile insurance through various special contracts. A representative special contract is the high-voltage battery new replacement special contract. For electric vehicles, the battery is the most important part, accounting for about one-third of the vehicle price.

Electric vehicle batteries often need to be replaced with new ones even in cases of minor damage due to the lack of repair technology, equipment, and substitutes, and in such cases, the policyholder must bear considerable additional costs (depreciation fees). Because replacement costs are so high, insurance companies have developed and are selling related special contracts.

It is also expected that special contracts covering personal injury and vehicle accidents during charging will become common. Electric vehicles use high voltage for charging, which poses a fire risk. While accidents during charging can be compensated under existing automobile insurance coverage, it is pointed out that clear compensation standards for the new electric vehicle type are necessary to minimize related disputes.

The need for a special contract to extend towing distance in case of electric vehicle accidents has also been raised. Compared to internal combustion engine vehicles, there are fewer specialized repair centers for electric vehicles, so there is a possibility that towing distances may exceed coverage limits in case of breakdowns.

The existing towing distance limit for automobile insurance is about 10 km, and some insurers operate special contracts that extend the maximum limit to 30?60 km. The report analyzed that by identifying an appropriate maximum towing distance considering the status of electric vehicle charging stations and specialized repair shops, and reflecting this in the maximum towing distance selected at the time of insurance subscription, the burden on policyholders can be alleviated.

A representative from the Korea Insurance Development Institute stated, "With the expansion of electric vehicle production, government subsidies for electric vehicles, and increased consumer purchasing preference, the future automobile industry is expected to shift to being centered on electric vehicles."

This content was produced with the assistance of AI translation services.