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February 27, 2024 by Adam Malik
Image credit: Depositphotos.com
Canadian electric vehicle owners might face higher insurance premiums in the near future, according to a recent report by Morningstar DBRS.
The shift from traditional gas-powered vehicles to electric alternatives, coupled with the higher costs associated with purchasing and repairing EVs, could lead to an increase in auto insurance rates across Canada, mirroring trends observed in the United Kingdom.
The report highlighted the inherent complexities and costs of electric vehicles, which are often described as “computers on wheels.” Central to their functionality are the batteries, which, if damaged, can lead to significant expenses.
Despite EVs typically having lower maintenance costs than their gas-powered counterparts, the expensive nature of repairs and a shortage of skilled technicians could elevate overall costs, subsequently impacting insurance claims and premiums. Insurance companies reassess premiums annually, taking into account factors such as repair costs, theft, inflation, and claims experience.
In an Auto Service World Conversations podcast episode, Kevin FitzPatrick, senior vice president at OPUS IVS, dug into the reasons why an EV repair — particularly Tesla — is much higher than an ICE vehicle.
“The scarcity of talent, which means that you can charge a premium, and I think people are going to take advantage of that for better or for worse,” he said as one of the reasons.
Car rental company Herz noted earlier this year that it was unloading Teslas from its fleet due to high repair costs.
Currently, high insurance premiums for EV owners have not become a widespread issue in Canada, thanks in part to the gradual adoption rate of electric vehicles. According to Transport Canada, zero-emission vehicles made up 8.9 per cent of light-duty car sales in 2022, up from 5.6 per cent in 2021, based on data from S&P Global Mobility.
Victor Adesanya, vice president of insurance at the ratings agency noted that the highly regulated auto insurance industry will likely help in reducing sudden spikes and sticker shock.
“Provincial governments are responsible for the regulation of auto insurance policies, including the monitoring of claims handling and dispute resolution. Provincial regulators also review and approve requests made by insurers to increase rates before they can be implemented,” he explained. “This could help mitigate the impact of insurance rate increases on the finances of EV owners on renewal or when an EV is registered for the first time.”
However, he noted, insurance rates will trend upward as more claims data is created for insurers in regard to EVs, which will then be reflected in pricing.
“We do not expect this to affect insurers’ profitability or credit ratings in the near to medium term because Canadians insurers are well capitalized and are relatively able to adjust pricing to preserve profitability,” he added.
How EVs will impact insurance rates
Image credit: Depositphotos.com
Canadian electric vehicle owners might face higher insurance premiums in the near future, according to a recent report by Morningstar DBRS.
The shift from traditional gas-powered vehicles to electric alternatives, coupled with the higher costs associated with purchasing and repairing EVs, could lead to an increase in auto insurance rates across Canada, mirroring trends observed in the United Kingdom.
The report highlighted the inherent complexities and costs of electric vehicles, which are often described as “computers on wheels.” Central to their functionality are the batteries, which, if damaged, can lead to significant expenses.
Despite EVs typically having lower maintenance costs than their gas-powered counterparts, the expensive nature of repairs and a shortage of skilled technicians could elevate overall costs, subsequently impacting insurance claims and premiums. Insurance companies reassess premiums annually, taking into account factors such as repair costs, theft, inflation, and claims experience.
In an Auto Service World Conversations podcast episode, Kevin FitzPatrick, senior vice president at OPUS IVS, dug into the reasons why an EV repair — particularly Tesla — is much higher than an ICE vehicle.
“The scarcity of talent, which means that you can charge a premium, and I think people are going to take advantage of that for better or for worse,” he said as one of the reasons.
Car rental company Herz noted earlier this year that it was unloading Teslas from its fleet due to high repair costs.
Currently, high insurance premiums for EV owners have not become a widespread issue in Canada, thanks in part to the gradual adoption rate of electric vehicles. According to Transport Canada, zero-emission vehicles made up 8.9 per cent of light-duty car sales in 2022, up from 5.6 per cent in 2021, based on data from S&P Global Mobility.
Victor Adesanya, vice president of insurance at the ratings agency noted that the highly regulated auto insurance industry will likely help in reducing sudden spikes and sticker shock.
“Provincial governments are responsible for the regulation of auto insurance policies, including the monitoring of claims handling and dispute resolution. Provincial regulators also review and approve requests made by insurers to increase rates before they can be implemented,” he explained. “This could help mitigate the impact of insurance rate increases on the finances of EV owners on renewal or when an EV is registered for the first time.”
However, he noted, insurance rates will trend upward as more claims data is created for insurers in regard to EVs, which will then be reflected in pricing.
“We do not expect this to affect insurers’ profitability or credit ratings in the near to medium term because Canadians insurers are well capitalized and are relatively able to adjust pricing to preserve profitability,” he added.
