Electric vehicle (EV) technology was in its infancy when Anthony Baker moved to Shanghai from Australia in 2013.
Over the last decade, Baker, who is chief technical officer at Allianz Partners for Asia Pacific and China, has seen the local market swell to just over 7 million electric and plug-in hybrid vehicles sold in 2022 — that’s a quarter of all new vehicles sold nationally in China.
Throughout his career, Baker has advised the Chinese government on electric vehicle strategy and consulted in countries including India and Singapore.
His experience gives him a unique insight into the future of insuring EVs in Australia and other less mature markets — insights he’ll be sharing at three ANZIIF workshops to be held in Jakarta, Hanoi and Bangkok.
Looking to the future
For insurers, the time has come to get to grips with how new technology will affect risk, their products and pricing.
According to Baker, this means looking beyond the vehicle itself and considering what electric vehicles mean for the future of mobility, continuing innovation in areas such as autonomous vehicles and disruptive new business models such as usage-based insurance and fleet business.
In terms of the physical vehicle, the major difference between an EV and an internal combustion engine (ICE) is that the EV’s battery constitutes about 40 per cent of the value of the vehicle.
At first, when the technology was unproven, the primary concern was vehicle damage and safety, such as whether the battery would catch fire or cause harm to drivers or other road users.
Now insurers are faced with the challenge of how to assess the value of a vehicle when the battery health and safety constitute a significant risk.
There are also emerging risks associated with the second-hand vehicle market — for example, the possibility that EVs could lose value or become obsolete more quickly than ICE vehicles due to the rapid evolution of vehicle technology.
Baker says that some hold the view that a battery can have a longer useful life while, on average, the shell of the vehicle could be disposed earlier.
“In China, some vehicle manufacturers are selling the shell of the vehicle and leasing the battery,” says Baker. “This can create complications for insurers who need to understand and calculate the depreciation and value of the vehicle and price it accordingly.”
In most markets, EVs can also cost more to repair.
“In order to keep up with the change in vehicle technology, auto workshops will need to invest in more sophisticated technology and technicians with the skills to use it,” says Baker.
“All of these factors could potentially push up the cost of insurance, though maturing markets such as China have moved through this phase. Now customers pay only a few percentage points more than they would for an ICE vehicle.”
Evolving business models
Baker encourages insurers to think beyond comparing the risks of EVs versus ICE vehicles and consider how to address the new business models evolving with the EV market.
“Manufacturers are moving from ownership to usership and mobility business models to satisfy changing consumer behaviour,” he says.
“Generally speaking, a higher percentage of the younger generations are more interested in renting or leasing a vehicle than owning one. In China, people who do own EV cars can put them on platforms for other users to pick up and drop off the vehicle.
"Electric cars typically have telematic connection, so it’s easier to keep track of kilometres travelled, where they’re located and even monitor the battery health.”
A different kind of competition
When it comes to competition, motor insurers with need to observe developments outside their own industry.
“In future, competitors won’t just be other insurance companies,” says Baker. “We’re seeing digital platforms, car manufacturers, importers, distributors and leasing companies emerging as major competition [for insurers].”
The car dealership model is already under pressure in some markets as manufacturers of EVs move towards opening retail showrooms in shopping centres and selling directly to consumers online.
Tesla remains the highest profile of these EV manufacturers, maintaining full control over its sales channel through an international network of company-owned showrooms and galleries, mostly in urban centres.
“Vehicle manufacturers and online platforms want to retain control of the client for the lifetime journey of the customer, including servicing, repairs and future purchases,” says Baker.
“This is a business-to-consumer model that both manufacturers and digital platform companies understand. In China, some vehicle manufacturers are also reviewing the control of insurance by setting up their own risk captives or insurance brokerages to manage their own risks in the future.”
Disruption expected to continue
Autonomous vehicles aren’t that far away either. Inevitably, they will create more disruption to the insurance and automotive market.
“If there’s an accident, it won’t just a question of whether the driver is at fault. Any problems will potentially lie with the product itself,” says Baker. “Manufacturers are questioning why they will always need to involve an insurer when they see it as a liability risk for the product.”
The Chinese government has been very active in supporting EV ownership by encouraging the development and sales of vehicles.
“People in China are highly incentivised to choose an EV,” says Baker. “For example, in Shanghai and Beijing, if you want to purchase an ICE you first have to buy or bid for a fuel licence plate.
"For ICE vehicles, the local Chinese governments typically issues a limited number of ICE vehicle plates which can cost as much as $20,000. You could also wait for a long period of time for a plate to be allocated. These conditions are generally waived for a purchase of an EV.”
Time to catch up
Up until recently, Australia has been slower to respond to the changes in EV technology. However, in early April, the Labor government announced a new National Electric Vehicle Strategy with the aim of increasing the uptake of EVs .
“One of Australia’s biggest challenges is building the charging ecosystem in a country with fewer than 26 million people in an area similar to that of China, where the population exceeds 1.4 billion,” says Baker.
Despite this, insurers can’t afford to be complacent.
“Motor insurance is one of the largest premium pools in the insurance industry,” says Baker. “Disruption lies ahead, and insurers won’t have long to address the technology change.”
The ANZIIF Electric Vehicle insurance workshop will take place in Jakarta 4 May 2023, Hanoi 9 May 2023 and Bangkok 10 May 2023.