By Ichiro Seino ,
Marsh Japan
17/06/2024
Despite a slowdown in 2023, electric vehicle (EV) sales continue to trend upwards, averaging 22% annual growth in Asia from 2024 to 2028 and accounting for 63% of the 115 million EVs to be sold worldwide over the next five years.1 Keeping pace with rising EV adoption, the EV insurance market is also projected to grow from US$64.18 billion in 2022 to US$687.62 billion by 2029.2
In addition, the industry faces complex regulatory challenges, including diverse consumer protection laws, environmental regulations, safety standards that vary by country, as well as market access and supply chain impacts from legislation, including the US Inflation Reduction Act and the EU Net Zero Industry Act.
Passed in August 2022, this act contains provisions to encourage domestic production and purchase of electric vehicles (EVs) and their components in the United States. This legislation has implications for Asia's EV manufacturers, particularly those in China. One significant aspect is the restriction on EVs using batteries from a "foreign entity of concern," which affects China as a major producer of lithium-ion batteries. Under the act, tax subsidies are aimed at supporting domestic EV manufacturers. To qualify for the full relief, vehicles need to be assembled using batteries from non-foreign entities of concern. This requirement challenges Asian EV manufacturers, including those in China, as they may face limitations on accessing the full benefits of the tax subsidies and be placed at a competitive disadvantage.
Additionally, the act emphasises the importance of US domestic manufacturing supply chains and reducing reliance on supply chains in the Far East. It aims to invest in domestic production and create jobs in North America. This focus on domestic sourcing may increase investment and growth in supply chains supporting EV production in the United States, potentially impacting Asia's EV manufacturers.
The European Union (EU) proposed the Net Zero Industry Act to retain firms and green investment within the EU and achieve net-zero greenhouse gas emissions by 2050. This legislative framework, if implemented, would require manufacturers to accelerate the development and production of low-emission vehicles. This could lead to increased investment in EV technology, expansion of charging infrastructure, and stricter emissions standards. Additionally, the act may incentivise research and development in renewable energy sources, battery technology, and other areas crucial to the EV industry.
As the industry evolves, new risks arise, and existing risks heighten. To ensure insurance offerings for the automotive industry remain relevant and are able to adapt to the rapidly changing technologies and regulatory landscape around EVs, insurers should focus on these key risks:
As automotive companies increasingly rely on global trade, they face heightened supply chain disruption risks. Political unrest, trade wars, and sudden changes in trade policies can severely impact the import and export of essential automotive components and materials. For instance, the potential U.S. ban on internet-connected Chinese cars and attacks on ships in the Red Sea disrupting a major global shipping route exemplifies disruptions that can escalate costs, delay deliveries, and affect market supply.
Apart from the U.S. Inflation Reduction Act and the EU's Net Zero Industry Act, automotive manufacturers can face additional obstacles to cost structures and profitability when navigating international trade agreements and tariffs. Additionally, expanding businesses must consider local labour market risks such as talent availability, cost, and compliance with local labour laws, which may evolve to protect local workforce interests or mandate certain pay and benefits, thereby impacting operational strategies and costs.
Product recall incidents may increase the adoption of new automotive technologies and components, but product liability is also a concern. For instance, lithium-ion batteries for EVs require unique safety precautions to prevent uncontrollable heat buildup. Battery-related incidents, such as the sinking of a car carrier due to an EV battery sparking a ship fire in 20223, factor heavily into insurers’ considerations when underwriting liability coverage.
Interconnected systems and the reliance on digital platforms for operations and customer engagement means that automotive businesses, including EV charge point operators, are prime targets for cyberattacks, data breaches, and ransomware. With remote cyberattacks currently outnumbering physical threats,4 insurers must keep pace by providing tools to assess cyber risk exposures, adapting their cyber coverage, and accurately quantifying the potential losses, with the additional consideration that ‘smart vehicles’ may be susceptible to the hostile takeover of vehicle functions and control, posing severe safety and liability risks.
To remain competitive and profitable in this increasingly complex market, insurers require in-depth insights into automotive industry trends, as well as the agility and expertise to adapt their traditional coverage models. Here are four ways insurers can act to seize the opportunity:
1. Adapting to regulations: Insurers must anticipate and respond to regulatory changes in the EV industry, aligning their policies with new standards and requirements. This includes coverage for regulatory compliance, such as safety and environmental regulations. Insurers can also proactively ensure Asia’s expanding automotive businesses meet compliance, transparency and accountability for the markets they seek to expand to/operate in.
2. Tailored insurance products: Specialised insurance products that cater to the unique risks of the EV industry can set insurers apart from the competition. This includes coverage for manufacturers, suppliers, and charging infrastructure providers. Close collaboration with risk advisors, insurance brokers, and industry stakeholders is crucial to designing robust risk transfer solutions with an optimal loss ratio.
3. Value-added services: Insurers can provide risk management services to help EV manufacturers and stakeholders mitigate risks. This includes risk assessments, safety guidance, advice on how to diversify supply chains (especially upstream raw material supply for EV batteries), and resources to enhance risk management practices. Insurers can also incentivise the adoption of safety technologies to reduce accidents and damage.
4. Data analytics and telematics: Insurers can utilise data analytics and telematics to assess risk and personalise insurance coverage for EV owners. Telematics devices in EVs collect data on driving behaviour, battery performance, and vehicle usage. Insurers can leverage this data to optimise usage-based policies, promote safe driving, and offer tailored coverage options. The insights from the collected data and analytics can also inform the development of new insurance products.
Despite the pace of technological transformation in the automotive industry, insurers may be inclined to adopt a wait-and-see approach due to constantly evolving regulatory changes and capacity challenges. However, the benefits of transitioning from traditional coverage models are manifold. Insurers that adapt have a “first mover” competitive advantage and can gain access to valuable data to create relevant products and solutions. There is also the opportunity for insurers to tailor a greater variety of embedded insurance solutions as automotive businesses begin to see the impact of these solutions in boosting their brand and revenue.
Insurers should also engage in active collaboration with manufacturers, technology companies, and regulatory bodies to create new insurance models for the future of the automotive industry. This can enable them to stay abreast of technological advancements and regulatory changes.
With in-depth automotive industry expertise and knowledge of emerging automotive trends, technologies and regulations, Marsh Asia helps insurers expand the capacity they can offer and design sustainable and competitive insurance programs by working with businesses to improve their risk management practices, gathering and modelling data critical for underwriting, and fostering transparency within the automotive industry.
We are committed to sharing our knowledge with insurers to help them address nuanced risks effectively. By facilitating collaboration between insurers and OEMs, we ensure the seamless integration of insurance solutions with the latest vehicle innovations. Additionally, Marsh Asia leads the way in data-driven insurance models, leveraging real-time car data to personalise coverage (e.g. usage-based insurance, or UBI) for accurate risk assessment and promote safe driving practices.