The electric vehicle (EV) market in India is experiencing a surge in popularity due to factors like rising fuel prices, government subsidies, and increased environmental consciousness. Despite these benefits, a major concern for potential EV buyers is the higher cost of insurance compared to traditional gasoline-powered vehicles. This article aims to explain the reasons behind this.
Car insurance premiums are affected by several factors, including engine size, the car model, and how the vehicle is used. Third-party insurance can start from ₹2,000, while comprehensive policies can range from ₹10,000 to ₹20,000 or more.
EV insurance costs are primarily determined by the vehicle’s kilowatt (kW) capacity, with annual premiums ranging from ₹1,780 to ₹6,712, or even higher for extended coverage (e.g., ₹5,543 to ₹20,907). The make and model of the EV also influence insurance rates.
The battery is a significant factor in the higher cost of EV insurance. It often represents a large portion (30-40%) of the vehicle’s total cost. Battery replacement can be extremely expensive if damaged in an accident.
For example, replacing an EV battery could cost between ₹4 and ₹6 lakh, whereas gasoline engine repairs are typically less costly. This higher replacement cost contributes to insurance companies perceiving a greater risk and, consequently, charging higher premiums.
Limited availability of spare parts is another contributing factor. Unlike petrol and diesel cars, which have established supply chains, EV parts are not as readily accessible across India.
If an electric car sustains damage to components such as a fender, control module, or battery pack, sourcing and repairing these parts can be expensive.
Moreover, the scarcity of dealerships and service centers further elevates repair costs. To mitigate these increased expenses, insurance providers often increase their premiums.
EVs are equipped with advanced technology, including features like ADAS, smart connectivity, digital displays, and automated braking systems. While these features enhance safety and convenience, their repair can be costly.
Even minor accidents can result in substantial repair bills, potentially running into lakhs of rupees. Insurance companies must account for these risks when setting premiums.
Instances of EV battery fires in recent years have increased the risk perception for insurance providers. Battery failure or fire incidents can necessitate the complete replacement of the vehicle.
Additionally, specialized training and tools are required for EV repairs, which are not always easily accessible. These factors contribute to the elevated cost of insurance.
The uncertainty surrounding the resale value of EVs also impacts insurance costs. While the second-hand market for petrol and diesel cars is well-established, the future resale value of EVs is less predictable, particularly concerning the battery’s lifespan.
Decreased battery performance can significantly reduce a vehicle’s value, prompting insurance companies to charge higher premiums to protect their interests.
The higher initial cost of EVs, despite government subsidies, contributes to increased insurance premiums. Insurance companies base their premiums on the car’s on-road price, and due to the higher cost of EVs, insurance premiums are naturally higher.
The insurance market for EVs in India is still developing. Insurance companies have limited data on EV performance, maintenance costs, and long-term damage trends.
This data scarcity leads insurance providers to increase premiums to manage risk, providing a financial buffer against potential losses.
While EV insurance is currently more expensive, the market is expected to evolve. As the EV market grows, premiums should gradually decrease.
The government’s support for green mobility, potentially through insurance tax breaks, could further reduce costs. Furthermore, advancements in battery technology, leading to lower repair costs and enhanced safety, will contribute to more affordable insurance options. As the EV network expands and demand increases, EV insurance is expected to become more cost-effective.