Tuesday, May 21, 2024
BusinessElectric cars pose risk to insurers, create new claim scenarios

Electric cars pose risk to insurers, create new claim scenarios

Charter revision underway

Insurance firms are confronted with new claim situations as the introduction of electric vehicles poses a risk to the insurance market.

The past 12 months have seen a surge in the number of electric vehicles as the government discouraged the use of petrol cars by imposing hefty taxes.

Executives from various insurance firms and reinsurers have been arguing the issue for a lengthy period of time in an effort to arrive at a consensus on how electric cars should be insured.

Even if an agreement has been reached that the premium for electric cars should be based on the minimum rate in force starting with the current fiscal year, insurance companies are reluctant to provide coverage for electric vehicles owing to the high risk involved.

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“Due to the unavailability of spare parts for electric cars and the absence of mechanics for the same type of vehicles, it is difficult to settle claims. The risk it involves is also high, as most spare parts are unavailable here,” said Gudina Legesse, Chief Executive Officer of Awash Insurance, the market leader among private insurers in Ethiopia.

Currently, insurance companies charge a premium of between 1.5 and two percent of the insured electric vehicle’s market value. In addition to other fees, the premium for electric vehicles is roughly 25 percent greater than the premium paid by owners of fuel-powered vehicles.

“We have prepared our own guidelines for the business, but we prefer not to provide coverage for electric automobiles. That is why our premium for electric vehicles is higher than for petrol cars,” said a senior official at Ethiopian Insurance Corporation, the state-owned insurance firm that controls more than 40 percent of the market.

Regardless of the fact that insurance for electric vehicles is a relatively new market, auto insurance still accounts for more than 70 percent of the total portfolio of insurance companies. This has put many insurance firms at risk of suffering enormous losses. In certain insurance businesses, the loss ratio for this particular line of business may reach as high as 75 percent of the total premium.

Nyala Insurance’s CEO, Yared Molla, is unconcerned about the extra risks that electric vehicles pose to the market.

“We can’t turn our backs on the global market’s new normal. The loss ratio is negligible, but there may be difficulties sourcing necessary replacement parts and financing their import,” said Yared. “Insurance companies may pay the whole amount in the event of total or partial damage if the necessary items are not available on the market.”

Experts beg to differ.

“The risk is really high. As a result, insurers must exercise caution when providing coverage for electric vehicles,” said Biruk Assefa, an expert with almost a decade of experience in the insurance industry. “A complete loss is more serious than what they confront with petrol cars.”

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