EV insurance claims outpace premiums as repair costs climb

Korean insurers are paying out more in claims for EVs than they collect in premiums, as expensive repairs, including for imported models like Teslas, drive up costs.

For every 100 won (8 cents) insurers collected in EV premiums in the first half of this year, they paid out 105.1 won in claims, according to the Korea Insurance Development Institute. The ratio, known as the loss ratio, was 85.6 percent for nonelectric vehicles, including hybrids. The industry considers around 80 percent the break-even point.

The gap has widened quickly. In 2021, the loss ratios for EVs and non-EVs were similar at 83 percent and 81.9 percent, respectively. Last year they stood at 107.6 percent and 88.2 percent.

The problem has grown alongside rapid EV adoption. New EV registrations in Korea rose 74.8 percent on year to 296,801 from January through September, according to data released Monday by the Korea Automobile & Mobility Association. Registrations of imported EVs roughly doubled to 132,582 over the same period, accounting for 47.4 percent of all imported vehicles registered.

“EVs use expensive parts such as high-voltage batteries, which makes repairs costly,” an insurance industry representative said. “Recently, the growing number of imported EVs has also pushed up repair costs.”

Some analysts also say EVs, which are cheaper to run than gasoline cars, tend to be driven longer distances, increasing their exposure to accidents.

Insurers now lose more money the more auto insurance they sell, but industry insiders say they cannot easily raise premiums while the government continues its push for inclusive finance. “With the push to expand environmentally friendly vehicles, it is difficult to raise auto insurance premiums because of EV loss ratios,” another insurance industry source said. “For now, we have no choice but to respond by applying surcharges to individual policies when accidents occur.”

Still, some expect premium increases to become inevitable if EV losses keep driving up overall auto insurance loss ratios.

Another challenge is that auto insurers cannot make full use of information on the performance and condition of individual EV batteries. Because diagnostic data and repair methods for assessing internal battery damage after an accident are lacking, insurers are more likely to replace the entire battery or write off the vehicle as a total loss, which in turn drives up repair costs and loss ratios.

“It is necessary to lay the groundwork for using battery data in auto insurance by continuously accumulating information on battery condition and history, so that the possibility of repair can be assessed and insurance risks analyzed,” said Cheon Ji-yeon, a research fellow at the Korea Insurance Research Institute.

BY OH HYO-JEONG [[email protected]]