Across the world, the electric vehicle (EV) market is booming.

In 2021, international sales for EVs (which include plug-in hybrids and battery-only vehicles) rose to 6.75 million units, an 108 percent increase from 2021. This year, the EV market share is expected to rise to 12.5 percent of the auto industry, with 10.4 million vehicles sold.

The surging price of gasoline is just one of the factors fueling the buying spree. A recent study found that EVs are now three to six times less expensive to operate than internal combustion engine (ICE) automobiles. 

In Israel, the market is small but strong. Currently, there are about 8,000 EVs on Israel’s roads, with Tesla holding a 50 percent market share.

Israel, Newbie in the EV Insurance Market 

Surprisingly, Israel’s insurance industry has yet to fully appraise the EV revolution. Israeli insurance companies continue to price EV policies like all other vehicles, despite their radically different makeups. EVs lack internal combustion engines, gas tanks, exhaust systems, carburetors, and a whole host of other parts we associate with traditional automobiles.

The lack of differentiation in the Israeli insurance market is due to three  primary factors:

1. Ignorance about the mechanics of EVs 
2. EV and ICE vehicles look nearly identical, a decision made by automakers 
3. A decision to price EV insurance with a long-term goal to increase the number of EVs under policy, anticipating greater growth in the years to come. 

Still, there is a reasonable explanation for the approach of Israeli insurers. Increasing the market share of electric vehicles allows insurance companies to collect data on the unique risks and hardware of EVs. For instance, are electric vehicles less prone to traffic accidents? What are the costs of repair? Are spare parts readily available? Currently, most of this information is based on information gleaned from intelligence outside of Israel. 

Right now, the Israeli driver is benefiting from the insurance companies’ learning curve. But it’s only a short-term benefit. Globally, insurance on electric vehicles is 15 to 20 percent higher than ICE vehicles. In time, the Israeli market will catch up. 

More Expensive Parts Lead to Higher Claims 

It’s important to understand the reasons behind higher insurance premiums for EVs. 

For one, electric vehicles are more expensive to manufacture, a result of advanced technology and pricey sub-systems present in every EV (parts that are absent in ICE vehicles). An EV is also built from a smaller number of parts than ICE vehicles. Therefore, in the event of an accident, it is probable that a larger and more expensive part will need to be replaced. 

For instance, for some vehicles the lithium battery of an EV accounts for about 25 percent of the vehicle’s value. In the case of a severe accident, if the battery as well as secondary assemblies need replacement, the chances for a total loss claim increase significantly. EVs are also heavier than traditional vehicles, which means that the passengers of EVs are more protected during a crash but those in the other vehicle are more prone to injury because of the EV’s weight. These factors, of course, have an effect on the price of a policy.

A 2020 study from the Highway Loss Data Institute found that electric vehicles were tied to about 20% fewer claims than similar vehicles running on gas. The US National Bureau of Economic Research (NBER) reasons this is because an EV can slow down faster than a traditional automobile. As well, since the battery of an EV has limited range, and many countries (including Israel) don’t yet possess a national charging infrastructure, road time, and therefore the potential for accidents, decreases. But as might be expected, when EVs do get into accidents, they do incur more damage. 

Other Risk Factors

In addition to gauging the risk associated with accidents and replacing parts, Israeli insurance companies must also take into account factors that accompany IOT-enabled devices. Cyber-hacking of vehicles, for example, is a small but concerning issue. In the absence of regulatory laws in Israel, it is unclear at this time if the insurer will be liable in such an incident and how that might affect the cost of policies. 

Supply and demand also plays a role in setting prices. The worldwide supply chain crisis, and the Covid-19 pandemic, has resulted in production interruptions and a shortage of raw materials, including chips, spare parts and other components. In the interim, this shortage will increase the cost of insurance.

Growth Potential Is Great 

The widespread adoption of electric vehicles has aroused enthusiasm among buyers who are thirsty for innovation and want to do their part in protecting the environment. 

Insurance companies that understand the growth potential of the electric vehicle market, and want to insure these cars, must undertake an in-depth study to understand the risks associated with EVs while continuing to collect information from existing policies. In this way, insurers can determine a long-term strategy while pricing policies in the immediate and interim phases accurately. This approach allows growth in the EV insurance market and protects companies from incurring significant losses.