Introduction

Historically, EV adoption rates have been low due to high-cost implications. However, the scenario has now changed due to factors like consumer sentiment towards environmental damage and rising AQI (Air Quality Index) levels.

A report by McKinsey states that more than 41% of Tier 1 Indian car buyers are targeting their next purchase to be an EV vehicle.

One concern that most people express is that cutting-edge technology and expensive components may escalate EV insurance rates. In this article, we explore the possibility of competitive insurance costs for EVs.

EV insurance rates: Myths vs realty

The higher upfront purchase price of EVs as compared to ICEs can drive up insurance costs. However, you can still afford an electric car if you understand the economics of long-term use. So let’s do that:

a   Structural differences

A structural comparison of ICE and EV shows that in the long run, EVs prove more cost-effective. For instance, ICEs are fuel specific. Besides the rising fuel costs make EVs easier to maintain. Moreover, EVs can run longer on the same level of energy consumption as compared to ICEs because a good deal of efficiency in an ICE is lost due to heat and friction.

The number of parts – even considering just the engine block – is lower in an EV which has about 20 movable parts as compared to around 200 in an ICE. And of course, an EV is environmentally friendly.

The low running and maintenance costs cancel out the extra expense of insurance keeping the overall cost at par.

b  Purchase cost

One of the reasons why insurance costs for EVs may escalate is the high purchase price which translates to a high IDV (Insured Declared Value). However, the government is taking steps to promote EVs both at the central and state levels.

For instance, the 2023-24 budget allocated INR 35000 Cr for the adoption of multiple initiatives towards net zero emissions. Similarly, the investment in the FAME (Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles) scheme has been increased by almost 80% to encourage EV adoption.

Here’s a look at the approximate incentives for various vehicle categories,

To drive volume when it comes to electric vehicle adoption, state governments offer incentives to respective State Transportation Undertaking to electrify public transportation.

Calculating third-party premium for EVs

Third party premiums of EVs are calculated based on KWh. A kilowatt-hour (kWh) is a unit of energy. It is a way of measuring how much fuel is contained within something or used by something over a specific period. A kilowatt-hour takes the same things we know about a kilowatt and applies it over a constant load over a specific period.  A kilowatt-hour is a unit of energy equivalent to one kilowatt of power that is sustained over a one-hour period.

Energy = Power x Time or kWh = kW x 1-hour

KWh determines the vehicle power. So, in case of the MG EV which has the power of 142.7 ps, it is equivalent to 106.5 KW and third-party rates would be applied accordingly.

Reducing EV insurance rates

The above discussion indicates the long-term cost-efficiency of EVs. The comprehensive vehicle insurance coverage of EVs includes parts, and after-market services, both of which are lower for EVs as compared to ICEs. Moreover, in June this year, the IRDAI (Insurance Regulatory and Development Authority of India) proposed a 15% discount on third-party insurance premiums.

And finally, here are a few strategies to cut your EV insurance rates further:

1  Buying an insurance online allows you to compare and select the best and most cost-effective insurance plan.

2  A voluntary deductible or the amount you agree to pay in case of a claim can significantly reduce the premium you pay towards vehicle insurance. 

3   Insurers are likely to charge lower premiums for vehicles that sport security devices like anti-theft mechanisms and safety locks.

4  Bonus offered by insurers when no claim is filed in a particular period is another contributing factor that can bring down the average insurance cost for your EV.

What the future holds

As technology evolves and becomes more widespread, the overall manufacturing and maintenance costs of electric vehicles are anticipated to decrease due to economies of scale, advancements in battery technology, and increased competition among manufacturers leading to lower insurance premiums.