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Electric Vehicles Present New Challenge for Insurers

Companies said they need experience to determine rates and they have little right now.

by on Apr.28, 2011

Insurers don't have any experience insuring electric vehicles such as the Chevrolet Volt, so they are classifying them neutrally.

When it comes to insurance, it’s all about experience. And right now, insurers have virtually no experience insuring the new breed of electric vehicles.

With electric vehicles starting to trickle into the marketplace, insurance companies are trying to figure out how to price coverage for them.

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Real experience will take a while as claims start to come in for electric cars involved in accidents, theft and other insurable incidents. With so few of them on the road, that could take a while.

“We do not yet have enough claims data from electric vehicles to make any such conclusions about them. Until we do, we will rate them neutrally,” said Angie Rinock, spokeswoman for State Farm Insurance.

The Nissan Leaf and Chevrolet Volt are the world’s first electric vehicles. The Leaf is a full electric vehicle, while the more complex Volt combines an electric powertrain with a gasoline-powered generator to provide power when the battery is exhausted. EVs from other manufacturers are also starting to hit the market, but in even smaller numbers than the Leaf and Volt.

Currently, electric vehicles are eligible for a $7,500 federal tax credit. So does State Farm view the Volt as a $41,000 car, the base price before the discount, or a $33,500 car, taking into account the tax credit?

“We do not take into account the federal tax credit when we set the MSRP for the car, in part, because there is no guarantee that the federal tax credit would be available when we have to replace the vehicle,” Rinock said. “Also, we don’t benefit from the federal tax credit when we are replacing portions of the vehicle.”

At some point insurance companies will have to pay to replace some of the more expensive parts of an electric car, such as the battery pack. When that happens, they’ll have a better idea how to price insurance for them.

Until then, companies will lean on the vehicle’s ISO rating, said Lori Conarton, spokeswoman for the Insurance Institute of Michigan.

Short for the Insurance Service Office, ISO provides insurance rating symbols for every car made. The company starts with a preliminary symbol based largely on the manufacturer’s suggested retail price.

“For vehicles such as the Volt and Leaf, which have been newly introduced for sale in the market and do not have associated loss experience, ISO bases symbol adjustments on grouped experience for vehicle series with similar body styling and wheelbase,” the company said in e-mailed statement

“Then by examining actual loss experience for that vehicle series, ISO makes adjustments – both upward and downward – to modify symbols as necessary.”

Insurers are allowed to use the ISO symbol, modify it according to their own formula or disregard it, the company said.

Conarton added that even after more than a decade of hybrid sales, the little experience insurers have with them has not shown an adverse impact on claims.

Quotes for several General Motors vehicles – chosen to eliminate discrepencies between automakers – shows that insurance pricing mostly follows vehicle price. State Farm’s web-based insurance calculator came up with a price of $157.28 per month for a Volt, which has a suggested retail price of $41,000. A similarly priced Cadillac CTS Performance Collection was quoted at $159.87. For a car that would carry a price comparable to the Volt’s $33,500 price tag after the $7,500 tax credit, the insurer quoted a Buick LaCrosse CSX at $131.84.

Interestingly, State Farm quoted a Chevrolet Cruze LTZ, which would be about the most directly comparable car to a Volt if it didn’t have the gas/electric powertrain, at $144.51.

So insurance for a Volt carries a price similar to a mid-level Cadillac CTS.

Insurance is just another factor which changes for drivers of these vehicles featuring cutting-edge EV technology. Owners of them can expect to pay a little more to insure them, compared to an otherwise comparable car.

Conarton said EV owners might want to shop around for insurance because some companies are offering discounts on the high-tech cars.

“Premiums and discounts vary by company and there are over a hundred carriers writing insurance in Michigan. There are some who provide discounts for electric vehicles so if you have one, it may pay off to shop around,” Conarton said.


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