Electric vehicles and usage-based auto insurance: What every insurer needs to know

The U.S. is rapidly transitioning to more sustainable approaches to driving. Government incentives are rolling out for new electric vehicle (EV) purchases as consumers express a growing desire for vehicles with fewer carbon emissions. As a result, electric vehicle sales are on the rise, accounting for roughly 4.6% of new light-vehicle registrations in Q1 2022, according to Digital Insurance. 

The EV boom introduces new variables that traditional insurance methods may not take into account. Insurers must prepare for continued growth in EVs — but how can they quickly understand the driving behaviors of EV owners so they can shift their pricing methods?  

The new challenges EVs pose for auto insurers  

The global EV market share is expected to grow to more than $1.3 trillion by 2028, leaving insurers only a few years to adapt to the growing number of EVs on the highway.  

Although EVs promise a brighter future for environmental health, higher price points and EVs’ unique requirements are changing the way insurers calculate risk. Predicting risk may be straightforward with gas-powered vehicles, but insurers need to consider several additional factors when it comes to EVs, including: 

  • Distance is no longer calculated by gas mileage  
  • If an EV offers self-driving technology, fault can be difficult to determine 
  • The question of whether common routes are defined by drivers’ daily activities or the location of the nearest charging station 

Usage-based insurance fills pricing gaps for EV drivers 

Insuring an EV profitably requires a new approach. Insurers need to shift away from relying exclusively on traditional pricing and risk assessments, and transition to usage-based insurance (UBI) to best assess EV drivers. 

UBI solutions more accurately capture the complexities of EVs compared to traditional proxies. For example, an insurer can better calculate the risk of an individual driver by knowing their actual driving behavior versus using traditional scoring factors like age and gender.  

Insurers need to shift away from relying exclusively on traditional pricing and risk assessments, and transition to usage-based insurance (UBI) to best assess EV drivers. 

Typical examples of driving behaviors that can shape an accurate risk calculation with UBI include: 

  • Speeding 
  • Hard braking 
  • Average distance traveled daily 
  • Average overall vehicle use  
  • Swerving  

When EV drivers embrace UBI, it becomes easier for insurers to know their drivers better through actual driving data. And the key to accessing individual driving data in this new approach is telematics insurance. 

The case for telematics insurance with EVs 

In addition to helping you better understand your EV drivers, telematics pair seamlessly with EV-connected car capabilities for data collection measures. Since EVs provide more data than their gas-powered counterparts, they equip you with the data needed to accurately identify safe drivers. 

The rise of the EV has also presented emerging opportunities for assessing risk with factors related specifically to these vehicles, like: 

  • Use of self-driving mode (if applicable) 
  • Average kilowatt-hour of electricity used  
  • Existing scoring factors like hard braking or rapid acceleration  

EVs also offer an easier path to consumer buy-in. UBI is an enticing way for consumers to offset the higher cost of EVs. UBI premiums can be more accurately and fairly assessed based on actual driving habits. The result? Safer drivers in your book of business and long-term loyalty to their provider. 

Rethink your EV insurance strategy with Arity 

Looking for a telematics provider to help shape your EV insurance pricing? Unlock new insurance solutions, accurately price premiums, and better understand EV drivers with Arity. Arity IQ helps you price confidently through instant access to actual driving behavior insights on tens of millions of drivers. 

Engage your EV customers with a hands-on insurance experience. Drivesight® offers drivers the chance to engage and take advantage of their safe driving habits with interactive technology. 

Partner with Arity and learn how a comprehensive telematics program can pay off as you price more EV drivers.