EV Manufacturers' Bespoke Insurance Solutions Could Create Shifts

in the Auto Insurance Landscape

Morningstar DBRS Overview

April 22, 2024
The race to 100% electric vehicle (EV) transition by 2035 has started in earnest. More than 15 countries,
including the United Kingdom, Japan, and Canada, have initiated climate policies mandating 100% zero-
Key Highlights emission vehicle (ZEV) new vehicle sales targets for light-duty vehicles by 2035 or earlier. The transition
• Traditional insurers have had to adapt to
high repair costs of EVs and the rapid
has gained traction in China, the UK, and Europe, where sales have grown exponentially since 2019,
pace of adoption in China, Europe and largely boosted by government incentives for buyers and material investment in charging infrastructure.
U.K. resulting in significant insurance Although governments have incentivized the reduction in the numbers of internal combustion engines
premium rate increases.
(ICE) vehicles on the road, the cost of insuring ZEVs is becoming a deterrent for mass adoption. Buyers
• In an effort to support sales momentum are already faced with the higher purchase costs of ZEVs compared with ICE vehicles, and also have to
and mitigate insurance concerns some EV
contend with the elevated cost of insuring them. Insurers in Europe and the UK have had to adapt to the
manufacturers have come up with
bespoke solutions by creating insurance rapid pace of adoption by proactively reviewing pricing models as more EV claims data are generated.
subsidiaries or partnering with a niche This has led to significant rate increases partly because of the higher price tag of EVs and partly because
insurance firm to provide tailored
they are more costly to repair. This is also a problem for manufacturers eager to boost the sales of these
coverage for their brands.
vehicles and gain market share. In an effort to support sales momentum, some EV manufacturers have
• The auto insurance landscape may come up with their own bespoke insurance solutions by creating insurance subsidiaries or partnering
change in future If the new EV brands are
able to gain material market share and
with a niche insurance firm (InsurTech) to provide exclusive insurance cover for their brands (See Exhibit
decide to continue creating tailored 1).
insurance solutions to make their cars
more appealing to the price conscious
mass market. Exhibit 1 EV Manufacturers With Bespoke Automobile Insurance Solutions

EV Manufacturer Insurance Subsidiary Region Strategic Partnership

Victor Adesanya Tesla Tesla Insurance U.S.A. n/a
Vice President, Insurance
Global Financial Institutions Group
Rivian Rivian Insurance U.S.A. n/a
+1 416 597-7350 Zeekr n/a Netherlands Qover/Helvetia
victor.adesanya@morningstar.com
Fisker n/a Europe Qover/Helvetia
Robert Streda NIO n/a Europe Qover/Helvetia
Senior Vice President Source: Morningstar DBRS.
Diversified Industries
+1 416 597-7397
robert.streda@morningstar.com
This is a trend that could gain momentum, potentially changing the landscape for private passenger
automobile insurance in the future with some premium dollars shifting to insurance subsidiaries of large
EV manufacturers or niche bespoke auto insurance players that provide exclusive coverage for specific
EV manufacturers. However, it's still too early to predict, and we don't expect this emerging trend to
affect the earnings or credit ratings of our rated insurers in the short to medium term.
Page 2 of 5 EV Manufacturers' Bespoke Insurance Solutions Could Create Shifts in the Auto Insurance Landscape | April 22, 2024

Market Penetration of EVs in Europe has Increased Significantly Since 2019

Traditional insurers have had to adapt to the rapid pace of EV adoption in Europe and the UK resulting in
significant rate increases. Based on 2022 data from the European Environmental Agency and the
government of the UK, the percentage of new vehicle registrations of EVs increased rapidly from 2019 in
Europe and at a slower pace in the UK (See Exhibit 2). Government rebates and infrastructure spend
have helped drive a more rapid pace of adoption in Europe. While the transition to EVs has gained
traction, vehicle pricing remains a challenge, with EVs still being typically more expensive than
comparable ICE models (even after some meaningful price reductions implemented by several EV
manufacturers last year). Range anxiety represents another headwind; this is notable in countries where
winter weather can significantly impact an EV's range (vis-à-vis normal operating temperatures). Finally,
the charging network needs to be considerably developed further. In Europe, Norway continues to lead
in the adoption rates of EVs, with the market share of electric car sales in the country reaching 88% in
2022 according to the International Energy Agency (IEA).

Exhibit 2 New EV Vehicle Registrations in Europe, and the UK 2017–22

Europe UK

25.0%
21.6%

20.0%

15.0%

10.0%
6.98%

5.0%

0.0%
2017 2018 2019 2020 2021 2022

Sources: European Environment Agency and www.gov.uk.

Note: Data covers all types of electric vehicles

Global Electric Vehicle Car Sales Have Grown Substantially Since 2016
The sales of EVs have grown significantly, reflecting the previously cited 100% ZEV sales mandate (by
2035) and further expected pricing declines as more EV models become readily available (with their
collective scale increasing, thereby further driving down production costs). Despite sales growth not
meeting expectations in recent quarters, we still believe EVs are heading toward widespread adoption in
the UK, Europe, and China over the long term. According to the IEA, EV sales has grown substantially
(albeit from a small base), globally exceeding 10 million units in 2022 and estimated to have reached 14
million by the end of 2023. IEA estimates that market share of electric car sales grew to 14% in 2022
from 4% in 2020 and is expected to continue growing. China accounted for more than 50% of all new car
sales in 2022 (See Exhibit 3); however, EV sales are growing rapidly in Europe as well.
Page 3 of 5 EV Manufacturers' Bespoke Insurance Solutions Could Create Shifts in the Auto Insurance Landscape | April 22, 2024

Exhibit 3 Global Electric Car Sales 2016–23

China Europe United States Other

16.0

14.0
0.9
12.0 1.6

10.0 0.6 3.4

1.0
$Millions

8.0
0.3 2.7
6.0 0.6

4.0
2.3
8.0
0.2
0.2 0.3 6.0
0.2
2.0 0.1 0.4 0.3 1.4
0.2 0.6 3.3
0.2 0.4
0.2 0.3 1.1 1.1 1.1
0.0 0.3 0.6
2016 2017 2018 2019 2020 2021 2022 2023

Source: IEA, https://www.iea.org/energy-system/transport/electric-vehicles.

UK EV Owners Face Higher Premium Rates and Potential Denial of Coverage

EVs are relatively new to the market, and insurers still do not have enough historical claims data to
accurately estimate lifecycle durability, maintenance, and repair costs. These vehicles are, in effect,
computers on wheels, packed with expensive and complex parts and advanced technology that can
make EVs expensive to repair after a collision. The Financial Times, in an article published on October 28,
2023, reported that auto insurers in the UK increased their insurance rates considerably over the year,
with one carrier suspending insurance coverage for EVs altogether to enable it to re-evaluate the cost of
repairs. The article further stated that in 2023, the average cost of insurance increased by 72%
compared with an increase of 29% for ICE vehicles. Some media outlets in the UK have reported the
owners of some Chinese EVs that are sold in the country are faced with the prospect of paying
excessively high premiums rates, making the cars almost uninsurable for owners that don’t have deep
pockets. The insurance issues experienced by owners of Chinese EVs are largely driven by the lack of
available parts and skilled technicians that are able to repair these vehicles, which are relatively new to
the market.

EV Manufacturers Initiate Insurance Solutions to Support Sales and European Expansion

In an effort to drive sales momentum, some EV manufacturers (mostly the new manufacturers that are
challenging the legacy brands for market share), have created their own auto insurance subsidiaries or
have entered into a strategic partnership with a niche provider. Tesla and Rivian already have in-house
insurance offerings while Zeekr, NIO, and Fisker have entered into bespoke a partnership with niche
insurer to support sales in Europe. In 2023, BYD, which is now challenging Tesla for the top spot in the
global EV market for sales, was given the approval by regulators to acquire and capitalize a troubled
insurance company with plans to turn it into BYD’s auto insurance provider.
Page 4 of 5 EV Manufacturers' Bespoke Insurance Solutions Could Create Shifts in the Auto Insurance Landscape | April 22, 2024

New EV Manufacturers May Change Auto Insurance Landscape in the Future

Aided in part by government policies and the tight deadline to meet the 100% adoption target, the new
automobile manufacturers have a head start over legacy brands in the sale of EVs. In Norway, for
example, Tesla has emerged as the top-selling car brand in the country, sidelining all of the legacy car
manufacturing brands. BYD, already an EV manufacturing power house in China, is now a major
exporter of EVs to Europe. If the new entrants were to gain a dominant market share in Europe, the UK,
and other regions, they may continue to drive and strengthen their own bespoke insurance solutions and
strategic partnerships to support sales, possibly splitting premiums written with the legacy insurers in
the future. We note that this is not yet a material shift; however, it could signify the beginning of a
trickle that could become a flood if the challenging EV brands are successful in crowding out the legacy
automobile manufactures, and their insurance solutions gain broad acceptance in the mass market.

Legacy Original Equipment Manufacturers are Also Creating Auto Insurance Solutions to Support
Sales and Maintain Loyalty
This development is not exclusive to EV manufacturers only, as mainstream Original Equipment
Manufacturers (OEM) are also expanding into insurance offerings to help promote sales and increase
customer loyalty. Other OEMs with automobile insurance subsidiaries include General Motors (OnStar
Insurance) and Toyota (Toyota Insurance).

We don't expect this emerging trend to affect the earnings or credit ratings of our rated insurers in the
short to medium term. But we are watching developments in the automobile industry and potential
effects on the insurance companies we rate.

Related Research
• Electrification 2035: Auto Insurance Rates to Increase as the Transition to Electric Vehicles Becomes Law
in Canada, February 12, 2024.
• European Auto ABS: Spanish Portfolios Transition to Alternatively Fuelled Vehicles, January 16, 2024.
• 2024 Global Automotive Outlook: Normalizing Demand Patterns Likely to Soften Earnings, Albeit from Solid
Levels, January 8, 2024.
• Canadian P&C Insurance Outlook 2024: Market Conditions Supportive of Premium Rate Increases,
December 11, 2023.
• Inflation and Theft Are Putting Pressure on Canadian Auto Insurance Profitability, October 16, 2023.
• Retail Auto Origination Trends in Canadian Structured Finance, September 7, 2023.
• European Auto ABS: French Portfolios Transition to Alternatively Fueled Vehicles, June 1, 2023.
Page 5 of 5 EV Manufacturers' Bespoke Insurance Solutions Could Create Shifts in the Auto Insurance Landscape | April 22, 2024

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