Summary
In our latest episode of Let’s Talk Motor series Associate, Dev Devadason, and ESG manager Abhay Srivastava, have a highly charged discussion of the Environmental, Social and Governance implications for insurers of increased uptake of electric vehicles and issues they need to consider.
Transcript
Dev Devadason: Hello, everyone. Welcome to the next episode of let's talk motor. I'm Dev Devadason, and associate in the large loss motor team in Weightmans.
Today, we're going to talk about the impact of electric vehicles on ESG factors for insurers.
Now transport is one of the key contributors to greenhouse gas emissions, representing a third of carbon dioxide emissions in the UK.
Electric vehicles are seen as one of the key means of reaching net zero.
In November 2020, the government committed to the UK phasing out new petrol and diesel cars and vans by 2030 for these to have zero tail pipe emissions 2035.
Former commitments have recently been pushed back to 2035, which has raised a number of political issues.
However, irrespective of this, this still requires a substantial increase in the number of electric vehicles on our roads. And this change can be seen with sales of battery electric vehicles increasing approximately forty percent over the last year, and now they now represent about sixteen percent of new car sales.
There are approximately eight hundred and fifty thousand battery electric vehicles on UK roads today. Showing that this is not a small issue and something that insurers do need to keep in mind.
Have it electric vehicles present a number of different and challenging situations for motor insurance, not least when considering their ESG commitments.
To help me delve into this topic, I'm joined by Abhay Srivastava ESG Manager at Weightmans, Welcome, Abhay.
Abhay Srivastava: Thank you, Dev. Thank you for having me.
Dev Devadason: Before we start, ESG, it's, one of these acronyms that's they're thrown around a lot, and I expect, a lot of our listeners will have heard of this. But can you just set out what it actually refers to, What does it mean?
Abhay Srivastava: Sure, Dave. So, ESG, which stands for environmental social and governance is a way of doing business. What it essentially means that business should be looking forward or driving business goals with an objective that balances the need of the present without compromising the ability of future generations to meet their own needs.
Dev Devadason: And why is this important to the insurance sector in general?
Abhay Srivastava: So, as we all know it, insurance is a mature industry.
It has been evolving over a number of years, and there is no other industry which has an ability to manage risk, associated with businesses or, non business parameters and built into insurance product. But with ESG, this is evolving.
This is changing day by day. The new technology related to vehicle construction is all, you know, shifting the focus. And I personally believe the next set of claims would stem from ESG related issues, whether it is disruption to the businesses from, catastrophic climate events or, you know, human rights aspect related to leading to, businesses business disruption, due to issues in their supply chain, which is why insurance, with their capability to embed risk into insurance products, should be looking at this evolving issues in ESG.
Dev Devadason: So this is something they need to factor into their businesses.
Now, looking at the electric vehicle or EV sector in general. Now, this is particularly large. It covers everything from micro mobility and mobility solutions, like e scooters all the way up to HEVs and even, electric, airplanes and ships. Now for the purposes of this podcast, we are gonna focus on, electric cars.
Now the electric vehicle, do pose a number of challenges for insurers. And these have been set out well in a recent report from Thatcham, which I'd certainly recommend, our listeners to look if they get the time. This is the impact of BEV adoption on the repair and insurance sectors BEV.
Referring to battery electric vehicles as opposed to, hybrid vehicles of, petrol, or diesel hybrids. Now this, report it highlights issues at every stage in the process.
Right from underwriting and pricing risk to assessing conducting repairs and then, issues such as recycling of materials. One point that's clear from report, many of the issues with battery electric vehicle stems from the high voltage components related to, the battery and the battery itself.
Now focusing on some of these specific issues, what are the sort of opportunities risks from a sustainability point of view to insurers.
If you look at, underwriting and premiums first, what are what are the challenges faced and is there anything that insurers can do to encourage uptake to increase because there's certainly been concerns raised about pricing of, EV insurance.
Abhay Srivastava: Sure. Dev in fact, you made a right start. So All these risks are factored into the premiums and the cost and what current data shows us that claims stemming from incidents involving battery electric vehicles, so called EVs are presently around twenty to twenty five percent higher than those involving traditional internal combustion engines in their typical IC vehicles.
Moreover repair processes for the EVs tend to take approximately fourteen to fifteen percent longer.
When a battery electric vehicle is involved in a road collision, the consequences for the vehicle can be severe. As the expertise and proficiency in rectifying the damages are still in the process of refinement.
So you can say that it's it's mainly the cost. And if you break down the cost, the cost is primarily attributed to the higher overall cost of electric vehicles which again is coming mainly from the batteries.
Additionally, advanced technologies integrated throughout the vehicle contribute to higher claims for electric vehicles.
But I personally believe that as battery tech advances and production processes become more efficient, cost, is expected to decrease, which in turn will lead to lower maintenance expenses and reduction in average value of insurance claims and ultimately lower premiums for the electric vehicle owners. But there is work to be done in terms of opportunities. I believe there are a number of opportunities in repair and recycling.
And, you know, skilling of workforce involved, which is susceptible to job loss with this potential transition from ICE to BEV.
Dev Devadason: Yeah. Well, I mean, one of the points for flag there is the cost and the, you know, how reducing costs can increase uptake, and that's not only the upfront cost of the, electric vehicle, which is, as you highlighted is higher than the typical ICE vehicle.
But yeah, the right as part of the running cost. The insurance premiums, if we can bring those down, then hopefully it can increase uptake.
Looking at the another significant part, about repair and, you know, what's the difference with, repairing an, EV compared to an ICE vehicle, internal combustion air engine vehicles petrol diesel vehicle.
And, how can this be done effectively to promote, ESG concerns? So For example, can recycling, it's a scope for recycling, especially with the batteries. So, the issues about lithium ion batteries will be well known to, listeners that, things such as sourcing the materials of the, whereas lithium come from, where's cobalt come from, and it raises all sorts of issues such as human rights issues, child labor issues, why did you build political concerns? Now, those are clearly all things outside of the scope of this podcast, but Yeah. From a repair recycling point of view, what can the insurers do in this area?
Abhay Srivastava: Thanks, Dev. In fact, you touched upon lot of topics, in that statement.
But, yeah, coming back to repair and recycling. I would say there is a lot of progress as far as repair claims are concerned.
A number of large global insurers have appointed a new approved repair network of carriages with sufficient or let me say decent capabilities and skills to repair electric vehicles the use of green parts which are undamaged non safety critical components that have been salvaged from another vehicle is a good example of work the sector is doing.
And depending on the parts, these can be, readily available. Which therefore can result in completion of, you know, a faster, repair cycle which can be also more cost effective, because green parts, as we all know, can cost up to sixty to seventy five percent less than their newly manufactured component, but this requires collaboration.
And such collaborations empower service providers to guarantee proficient and punctual maintenance, a crucial factor in controlling claims expense as we know it. This is especially important. Given the intricate technical aspects of these modern vehicles and current surge in claims cost that insurers are grappling with. With the increasing global adoption of the BEVs. It might not be too far in the future before EV insurance premiums linked to repair can be, you know, can be brought down and become, at par with traditional ICE engines.
As far as recycling is concerned, we have seen EV industry transitioning from lead acid batteries to lithium ion with a number of other technology and pipeline. So, while at this moment, there are challenges with companies involved in mining supplying lithium ion or even recycling batteries because there is believed to be a decent, you know, value left in used value, used batteries, which can therefore be recycled at a cell level.
But this requires significant investment and partnership with R and D focused firms.
This, I believe, is a big opportunity for the insurance and the EV sector.
Dev Devadason: So it seems there are a number of deficits, but there are, you know, people are looking at filling those, but there is a way to go, with that.
I mean, EVs, they are they're relatively new or the, well, the, over a hundred years old, but they've come to prominence, relatively recently.
Is there that does the industry have the skill set to, deal with repairs to,
Abhay Srivastava: That's a very good point, Dev. I believe skills are an issue. And, that is I would say, across any evolving sector. So EV insurance space is no different.
In my honest opinion, the gap can be addressed partly through, again, collaborations across value chain and partly by investing into upskilling the workforce from traditional ICE auto sector, which also serves well for the insurance and the EV industry from social value perspective.
So, I believe EV insurance industry is in the front seat, driving clean tech transition. And by upskilling workforce, there is a potential to enhance the social value at the same time, ensure that cost, which comes from, you know, a limited skill availability or limited availability of skilled manpower. Can be addressed. And I know there would be a component built into premiums looking at the shortage of such manpower.
Shortage of such workforce, which therefore by significant investment or collaboration can be brought down.
Dev Devadason: No. That's really interesting. Again, it's it seems to be one of these areas. There is a deficit, but there's scope to improve and that, you know, that should be able to feed into a number of areas, not, and overall helping to bring down the costs as, you know, you upscale more people and you have more people available and that should hopefully help bring down, repair times.
Thank you very much, and I hope you found this discussion interesting in this fast moving area. As you can imagine, we've only touched on, and a few areas very superficially, needless to say there far more detail, and I'd certainly encourage you to read the, Thatcham research paper, which goes into some of these concerns, in a lot more detail provides some, potential solutions.
As Abhay mentioned it's, really, useful to see that there are solutions out there that they are being looked at and factoring these in as issues for our insurance clients to look at.
We hope that this is a large field. We've only touched on a small area. We hope to follow this up with other podcasts looking at other issues with electric vehicles.
And also keep an eye out for further podcast in our let's talk motor series.
Well, thank you, Abhay, and thank you for listening.
Abhay Srivastava: Thank you, Dev.