Taking Charge: How EVs are Impacting Auto Insurance and Collision Repair
Ryan Mandell
Director of Claims Performance, Auto Physical Damage, Mitchell, An Company
Electric vehicles are making the transition from novelty to necessity. In Q1 2022, sales of new model mild hybrids (MHEVs), plug-in hybrids (PHEVs) and full battery electric vehicles (BEVs) reached . In fact, overall EV sales volume increased by nearly 75,000 units while, at the same time, the new vehicle market experienced a 15% decline. Q2 was no different and —an increase of 66% year over year.
Rising fuel costs, greater model and manufacturer selection, and the desire for environmentally friendly transportation options are driving consumers to embrace electrification like never before. So, too, are state and federal initiatives such as California’s plan to ban gas-powered cars by 2035 and the U.S. government’s investment in EV charging networks. In Canada, the (ZEVIP) is having a similar effect.
As EVs become a larger segment of the North American car parc, the automotive insurance industry is bracing for the impact. With the increase in EV sales comes an increase in the percentage of repairable claims attributed to EVs (Figure 1). When comparing 2022 year-to-date (YTD) to pre-COVID 2019, BEV repairable estimate frequency has nearly doubled from 0.41% of all estimates written to 0.74% while MHEVs and PHEVs combined to increase from 2.29% in 2019 to 2.58% in 2022 YTD based on Mitchell estimating data.
Not surprisingly, the Western United States (including California, the Desert Southwest and the Pacific Northwest) continues to see the highest rates of BEV adoption as well as the highest BEV repairable claim frequency (Figure 2), according to the National Automobile Dealers Association (NADA). However, some parts of the country, such as the Mountain and Eastern regions, are experiencing a more rapid increase in BEV claim frequency. This suggests that the trend is expanding across the country, especially as charging infrastructure becomes more prevalent. NADA also reports that Canadian adoption has increased tremendously with the highest frequency and fastest increase coming in the province of Quebec, rising from 0.93% of repairable claims in 2019 to 2.44% in 2022 YTD (Figure 3).
For the past decade, one factor that many analysts have pointed to that will continue to drive greater EV adoption has been the improving cost effectiveness of lithium-ion batteries. While this trend will certainly push the industry toward price parity between EVs and vehicles with Internal Combustion Engines (ICEs), early 2022 has seen a rapid change in raw material prices due to global supply chain disruptions and the Russia-Ukraine conflict. For the first time in 10 years, the to approximately $160/kwh as compared to nearly $105/kwh at the end of 2021. Despite this trend and its effect on EV pricing, however, gross sales continue to accelerate.
Multiple sources, including , predict that the U.S. car parc will be 3% fully electrified by the year 2025 and almost 8% electrified by 2030 (Figure 4). Similarly, based on the Canadian government’s projected sales targets, that the Canadian car parc will also be 3% electrified by 2025 and an astonishing 11% by 2030. By comparison, when we examine Mitchell repairable claims data, Jeep vehicles represent roughly 3% of estimates written and Honda vehicles just over 8%. These figures are far from insignificant and automakers along with third-party service providers continue to invest In EV alternatives designed to accelerate adoption.
This unprecedented EV growth presents new challenges for collision repair facilities and, in turn, the auto insurance industry. These challenges include the introduction of complex electronic systems, differences in vehicle construction and, most importantly, impacts on safety. An examination of scanning results from Mitchell Diagnostics reveals nearly twice as many fault codes for BEVs as compared to ICE automobiles. Newer EVs are also advancing in complexity at a faster rate than their ICE counterparts with a 95% increase in the number of fault codes per scan for 2017 and newer EVs compared to 2016 and older. ICE vehicles, on the other hand, saw only a 32% jump in fault code volume for the same model year vehicles (Figure 5).
Furthermore, MHEVs and PHEVs account for more than two additional lines per estimate compared to ICE vehicles, and BEVs add more than 12 lines (Figure 6). The presence of a caustic and potentially explosive high-voltage, lithium-ion battery is to blame for many of these differences. The reason: it during the course of a repair to protect repair facility employees, the vehicle owner, and the automobile itself. Strict precautions must be taken as soon as an electrified vehicle arrives at the shop. There is an entire section of the website devoted to the intricacies of EV repair. The organization also has a wide range of training materials and resources designed to support collision repair professionals in the delivery of a proper and safe repair. Additionally, many manufacturers specify temperature exposure thresholds for their EV batteries. These thresholds from the vehicle and isolated prior to the automobile going through a paint booth bake cycle.
The differences between EVs and vehicles powered by ICEs go beyond just the battery, however. Also noteworthy are the variances in metrics related to estimatics (Figure 7). For example, the emergence of OEM EV platforms has produced fewer aftermarket part options. This, in turn, results in greater reliance on automotive recyclers for alternative parts. Plus, since manufacturers rely more heavily on lightweight materials in the construction of EVs, there may be fewer repair opportunities for collision shops due to the way materials like aluminum, carbon fiber and composites respond in an accident. Newer, lighter weight substrates help offset the immense weight of the high-voltage battery but pale in comparison to the .
As EV adoption continues to grow, auto insurers and collision repairers will need to prepare. That preparation should include having the right tools, training and understanding of how EVs impact claims processes and costs. It should also include an evaluation of the technology solutions used to support collision damage appraisals. Historically, estimating platforms have not accounted for the stark differences between EVs and ICE-powered vehicles. For example, the “skateboard” design used in the current generation of EVs is dramatically different in terms of powertrain and parts. This can affect estimate accuracy, appraiser efficiency and even proper repair—especially when EV-specific parts and categories are substituted for ICE alternatives. To account for these differences, appraisal solutions should be tailored to EVs with the addition of EV types, part categories, data organization and standard definitions for battery capacity and motor size. Having features like these can help streamline the appraisal process and return the growing number of EVs—and their owners—to the road safely and cost effectively following a collision.