The electric vehicle (EV) market is undergoing significant growth, with expectations of continued expansion in the coming years.

Consumers are increasingly adopting EVs in response to environmental concerns, government incentives, and technological advancements. This shift is creating a new frontier in the insurance industry, with specialised products being developed to meet the specific requirements of EV owners.

According to the International Energy Agency (IEA) Global EV Outlook 2024, global EV sales increased by 25% in the first quarter of 2024 compared to the previous year.

The International Energy Agency is a Paris-based autonomous intergovernmental organisation, established in 1974, that provides policy recommendations, analysis and data on the global energy sector. The 31 member countries and 13 association countries of the IEA represent 75% of global energy demand.

In India, the EV segment has emerged as a key driver of change, now valued at over US$ 100 billion and contributing substantially to the economy.

A transformative shift in the automotive landscape

The rapid adoption of EVs in India reflects a global movement towards sustainable practices. This transformation affects not only the automotive sector but also requires the insurance industry to evolve. With India targeting 30% EV penetration by 2030, there is a clear need to move beyond conventional insurance models and offer specialised products that address the emerging challenges and opportunities in this market.

The future of electric vehicles

Rising fuel prices and growing concerns about carbon emissions from internal combustion engine (ICE) vehicles have increased the appeal of EVs for both consumers and manufacturers. Supportive government policies have further improved their viability. However, EV insurance remains under-emphasised and is often treated as secondary to vehicle ownership. Insuring EVs involves specific challenges, such as higher costs associated with advanced technology and repairs. Addressing these issues is essential to support consumers and enable industry development.

Leveraging technology for enhanced insurance solutions

Technological innovation plays a vital role in bridging the gap between EV adoption and insurance. Tools such as telematics, the Internet of Things (IoT), and AI-powered analytics are essential for effective risk assessment, preventative maintenance, and real-time monitoring. Insurance providers must utilise these technologies to deliver customised coverage, predictive maintenance programmes, and dynamic pricing models. These efforts improve risk evaluation and allow fleet managers to operate more efficiently and safely.

Several insurers have already recognised the distinct needs of EV owners and have taken proactive steps by introducing insurance products specifically tailored for electric and hybrid vehicles. Key offerings may include private charging station cover, personal accident cover, and battery coverage.

Understanding consumer usage patterns

Analysing consumer behaviour is critical to the development of effective EV insurance policies. Variables such as driving distance, charging frequency, and usage environments all contribute to the risk profile of an EV. With onboard sensors and telematics systems, EVs generate data related to speed, acceleration, braking, battery efficiency, energy usage, and location. This information enables insurers to conduct data-driven analyses, allowing for the creation of coverage and incentives aligned with sustainable practices and safe driving.

Evolving insurance products for EV owners

Modern insurers now offer a range of motor insurance options, including standalone third-party cover, standalone own-damage cover, comprehensive cover, and bundled long-term policies for new vehicles. By monitoring driving behaviour and safety patterns, insurers are able to provide flexible premiums through features such as Pay As You Drive (PAYD) and Pay How You Drive (PHYD). These usage-based insurance models align with the preferences of environmentally conscious EV owners, reward responsible driving, and foster customer retention.

As India moves towards environmentally sustainable transportation, government initiatives are also shaping the EV landscape. Policies such as the battery-swapping initiative introduced in the 2022 Union Budget are aimed at accelerating EV adoption, thereby creating favourable conditions for the insurance sector.

The need for tailored insurance

As the EV market expands, there is a growing requirement for insurance providers to gain clarity on coverage details. EVs are equipped with advanced battery systems and unique repair requirements, necessitating an understanding that goes beyond traditional underwriting practices. Clear, specific policies that define coverage limits and risks are essential, particularly in light of incidents such as EV-related fires, which underscore the need for comprehensive insurance.

Learning from global best practices

International markets such as China and Brazil have introduced measures to strengthen EV insurance frameworks. In China, collaborations between insurers and automobile manufacturers enable the collection of real-time data on EV performance, supporting more accurate risk evaluations. In Brazil, insurers have focused on products that include coverage for battery replacement and charging infrastructure. These strategies have contributed to more stable premiums and reduced uncertainty for consumers and insurers alike.

Fostering consumer awareness

Despite slightly higher insurance costs for EVs compared to conventional vehicles, it is essential that consumers understand the specifics of their insurance policies. As India seeks to become the world's third-largest EV market, policymakers and insurance providers must work together to create transparent, well-structured policies. Encouraging consumers to review and comprehend their coverage options can help establish a collaborative environment, supporting the growth of both the automotive and insurance sectors in their efforts to promote clean and efficient mobility.

By offering insurance products that address the distinct risks and benefits associated with EVs, the insurance industry has an opportunity to play a critical role in supporting India's transition to sustainable transportation.

Pooja Yadav is Chief Product Officer at Zuno General Insurance and the views expressed in the article above are her own.