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Surging UK insurance premiums for electric vehicles pose a risk to their widespread adoption, analysts have warned.
Some providers have become hesitant to offer cover for battery-powered cars due to the difficulties in underwriting the cost of replacement or repair of their components, exacerbated by a shortage of specialist technicians.
These factors have added extra challenges for insurers in a market where the wider inflationary pressures have driven the price of motor insurance for all vehicles to an all-time high.
Ben Nelmes, chief executive at New AutoMotive, a non-profit organisation that supports the transition to electric vehicles, said rising insurance costs threatened to “undermine the appeal of electric cars and vans for businesses and motorists because it undermines one of the key advantages of electric vehicles, which is their cheaper running costs”.
Price comparison website Confused.com said the average cost of insuring the Tesla Model 3, the most quoted EV on its platform, rose by more than two-thirds in the past two years from £814 in 2021 to £1,367. The cost of insuring the cheaper MG4 rose from £554 last year to £711 in 2023.
“While we’re seeing new makes and models on our roads now, these cars typically have more advanced technology or parts,” said Louise Thomas, a motor insurance analyst at Confused.com. “And in the event of a claim, these can be incredibly costly for insurers to repair or replace.”
The platform was seeing fewer insurers offering EV policies than for other types of vehicles, “which can mean pricing is less competitive”, she added.
Last month, retailer John Lewis said it had stopped selling insurance for electric vehicles after Covea, its underwriter, withdrew cover while it reassessed the cost of EV repairs — a move confirmed by the French insurer.
Colin Walker, head of transport at the Energy & Climate Intelligence Unit, said the rising cost of cover would exacerbate the concerns of prospective buyers about the higher purchase price of EVs, compared with combustion-engined vehicles, and the lack of charging infrastructure. “If you then see a significant jump in the cost of insurance, the proportion of people who can afford them narrows,” he added.
Carl Shuker, chief executive for UK and Ireland at insurance broker Howden, said that finding enough capacity among insurers to cover EVs was “certainly an issue”, with underwriters citing difficulties in sourcing spare parts and specialist labour as contributing to unsustainable costs.
“All these factors are leading some, but not all, insurers to rethink their appetite,” Shuker added.
A key early test of insurance appetite will come in January, according to Nelmes, when UK carmakers will have to increase their sales of EVs to meet mandatory targets.
Some analysts argue that commitments from big insurers such as Aviva to insure EVs as part of their green transition strategy will ensure there will be enough cover available in the market in the long term.
“Insurers will insure electric cars, but some are pickier than others,” said Mike Powell, motor insurance expert at Defaqto, which analyses and rates financial products.
Powell added that insurers were “struggling with electric cars” for a range of reasons including a shortage of technicians, a problem that he predicted could worsen as more EVs hit the road.