Is it easy to insure an electric car? We consider the cost

The history of electric vehicles (EVs) goes back as far as internal combustion engines. Thomas Edison was a champion of the electric vehicle and he and Henry Ford even worked on an electric vehicle together in 1914.

Perhaps if their early work had pushed electric vehicles into the mainstream, insuring them today would be more straightforward. As things are right now, there are some challenges with cost.

Electric cars make up only a small percentage of vehicles in Australia, but that is changing year on year. As of its August 2021 report, the Electric Vehicle Council (EVC) found EVs accounted for 1.57% of total light vehicle sales, which is just over double that of 2020. Even if Australians don't have accesses to the full range of EV models due to federal policy, it seems people like electric cars.

Despite this growth, we're still lagging behind the rest of the world – the global market share of EVs is around 4%, with frontrunners like Norway and the UK boasting electric car sales at around 74% and 10.7% respectively. On top of this, subsidies and emission targets encouraging EV uptake also aren't part of our government transport strategy. This is holding developments back while other world leaders make plans to ban the sale of new petrol and diesel-fuelled vehicles over the next decade.

But on an individual level, if you are in a position to purchase an electric or hybrid car, your next pitstop will likely be to chat with an insurance company.

Insuring an electric vehicle

At present, insuring an electric vehicle is a little pricey. However, contrary to popular belief this isn’t necessarily due to the high market value of the cars.

As part of the research for Mozo’s 2020 Experts Choice Awards for Car Insurance^, we looked at how much it might cost to insure ten different electric vehicles. Based on 67 car insurance quotes from seven different scenarios, our research team worked out that the average yearly insurance premium for all ten electric cars would be around $2,515. That’s with an average market value of $120,000.

The lowest quote from those seven scenarios was $1,171. Plus if you take Teslas out of the equation, which are generally very expensive, then the average yearly premium would be around $1,415. In context, the average car insurance premium across all vehicles was $952.

Why are insurance premiums higher for electric vehicles?

While most car insurance companies do offer cover for electric vehicles, the policies they currently have were originally designed with internal combustion engines in mind. We spoke with policy and communications officer for the EVC, Alexandra Kelly on what some of the biggest challenges might be for the insurance industry. 

The first thing Kelly flags is that insurance tends to be higher for electric vehicles not because they cost more, but more because there is a high level of uncertainty around them. “Obviously a more expensive vehicle will have higher premiums anyway, but the reason we’re seeing insurance for electric vehicles priced so high is because it’s something new for the industry,” she says.

Kelly notes that suddenly you have this new car which isn’t really a car at all, it’s more like a computer on wheels. 

“So it doesn’t have an engine and it doesn’t have all the components that exist in an internal combustion engine, but you’re asking insurance to still insure a vehicle,” she says. “The provider will say, ‘well there are too many unknowns for us to do this competitively and confidently, so we’ll increase the premium and that covers any risk we might come across in terms of financing future operations’.”

The biggest challenge for insurance is the lack of knowledge around electric vehicles. 

“Insurance providers are definitely becoming more and more aware of electric vehicles, Kelly says. “The NRMA, for example, really pushes electric vehicles.” 

As you may know, the running costs for electric vehicles are usually lower than for standard diesel or petrol cars. The question is do the fuel savings outweigh the insurance costs?

Fuel savings vs insurance

According to the EVC, electric cars have lower overall running costs than cars with an internal combustion engine. On its website the EVC notes that the average Australian drives around 15,000km and spends approximately $2,160 on petrol each year (that’s 14c per km). An electric vehicle travelling the same distance, however, would only incur around $600 in electricity costs per year (4c per km).

Kelly agrees with this, saying that the insurance costs would not outweigh the savings on maintenance and fuel. “It would have to be a very, very high premium to do that. So you would still get the economic benefit of having an electric vehicle, despite the higher premiums.”

The EVC also says that in 2018, maintenance and servicing savings of an electric vehicle were estimated to be around $300 to $400 per year. So, it’s not just the fuel costs that you could potentially save on but also the maintenance of the vehicle.

Kelly adds that while there are around 20 moving parts in an electric vehicle, in an internal combustion engine there are over 2,000. “When you take an electric vehicle for servicing they’ll check the tyres, the brake pads, the steering and that’s about it,” she says. “Then they’ll look at the software. If you have a Tesla, your software will be regularly updating.

“You simply can’t compare an internal combustion engine like for like with an electric vehicle, they’re just not on the same page. Where you usually would take your car for a service every 12 months, with an electric vehicle you may not have to get it checked for 18 months.”

What’s next for electric vehicles?

According to the EVC’s 2020 State of Electric Vehicles Report, there are now 2,307 public charging stations in Australia. This figure has increased significantly since 2019 (more than 40%) and will continue to do so as the market expands.

The NRMA also recently partnered with the NSW government to deliver at least 20 additional electric vehicle fast chargers across major regional corridors in the state.

In terms of actual maintenance, Kelly says that TAFES and government bodies are looking at how they can develop training courses to give technicians the skills they need to work on electric vehicles in the future.

Ultimately insurance is all about risk. If an insurance company cannot confidently determine a risk then they may understandably make premiums higher to make sure that risk is fully covered. However, as knowledge of this technology grows and there are more facts, figures and case studies to base insurance premiums on, then there is a chance that the cost to insure electric vehicles will go down.

Most providers in Australia offer insurance for electric vehicles. Head to Mozo’s compare car insurance page, to have a look at what policies are on offer right now.

^Now in their seventh year, the Mozo Experts Choice Awards are designed to highlight the most competitive financial products, on the Australian market.