New Car Market: Even When EVs Are Cheap, Insurance Is Sky-High — True Costs You Need to Know
Written by
Sean Fisher, AI Editor
Edited by
Sean Fisher
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In an era when the electric vehicle (EV) market is booming globally, a recent report states that despite EVs getting affordable, the insurance costs remain steep, making the total cost of ownership far from inexpensive.
The electric vehicle revolution is undeniably on the rise, with EV sales surpassing 10 million globally in 2022, as stated by the International Energy Agency (IEA). The IEA also anticipates this number to surge nearly four-fold by 2030.
However, as the EV market flourishes, consumers and car insurance companies are grappling with the impact of this swift escalation on auto insurance premiums.
It is an established fact that EVs carry higher price tags than traditional internal combustion engine vehicles, a fact that directly affects the insurance rates. The driving factors behind this are the high manufacturing suggested retail prices (MSRPs) and repair costs associated with EVs.
As of March 2023, the average cost of a new EV stood at $58,940, over $10,000 more than the industry average cost for a new traditional vehicle. It is worth noting that these prices heavily influence the cost of car insurance, hence the higher coverage costs for EV owners.
Furthermore, although EVs have fewer components at risk of breaking down, when these parts do require repair or replacement, the costs can be staggering. The battery pack of an EV is a case in point. The cost to replace an EV battery could range from around $4,500 to a staggering $18,000.
The limited number of qualified EV repair shops and technicians also contributes to the high repair costs. Therefore, the combination of high MSRP and elevated repair costs drives the insurance premiums for EVs upwards.
However, as the market share of EVs expands and they become commonplace on our roads, we could anticipate a decrease in both repair costs and MSRP, leading to a subsequent drop in insurance costs. For the time being, though, higher insurance premiums for EVs seem inevitable.
There are ways for EV owners to offset these high insurance costs. Several local, state, and federal rebate programs can help cut down the total cost of EV ownership.
For instance, the 2022 Inflation Reduction Act offers a tax credit of up to $7,500 for purchasing a qualified EV, which will continue until December 2032. Moreover, various insurance companies offer potential discounts for EV owners due to their eco-friendliness and lower risk of fire-related accidents.
From the insurers’ perspective, the escalating growth of EVs presents new challenges and potential changes to their underwriting models and risk assessments.
The increased costs of collision coverage due to high repair costs of EVs and the potential requirements for additional homeowners insurance for home-charging units are likely to be reflected in their policies.
Furthermore, the insurance industry might need to invest in specialized training for their staff to handle EV-related claims efficiently. As EVs become more prevalent, insurers may need to devise new policies or expand existing coverage options specifically designed for EV owners.
Even though the price of EVs is predicted to drop in the future, the insurance premiums are expected to remain high in the near term due to elevated MSRP and repair costs.
However, it is anticipated that insurance costs will eventually level out as the market adapts to the rising prevalence of EVs. For now, potential EV owners need to factor in these high insurance costs as part of the true cost of EV ownership.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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