Can insurers set rates on Chinese EVs without risk data?

Although P&C insurance brokers appear to be taking Canada’s decision to import 49,000 Chinese-made electric vehicles (EVs) in stride, consumers and insurers must now consider whether they’ll buy and insure these new market entrants.

It’s expected initial imports will be known brands, such as Volvo and Tesla vehicles built in China, because those companies have existing Canadian dealer networks. Brands like BYD, originally built for China’s domestic market and now exported to Asian, European and other markets, may eventually follow.

Over the next several years, the Canadian P&C industry will amass the data required to make or amend rating decisions on Chinese EVs. What happens until then is unknown. Industry sources have told CU in the past that a lack of claims data means the risks are unknown, meaning underwriters will assume a higher risk factor to determine pricing until actual Canadian data are available.

Related: Are EVs cheaper to insure than gas vehicles? It depends

Meanwhile, consumers considering buying Chinese EVs will have questions about what those vehicles will be like to service, any warranty limitations, and the pros and cons of the service experience, says Aaron Blackwood, senior sales manager at Mitch Insurance.

“This is different [and] this is new. We’re in the same boat as insurance providers. We’re going to be thinking about that,” he tells CU.

Adam Mitchell, CEO at Mitch Insurance, says he’s looking at the issue from two sides.

“Our partners [at insurance companies are] going to have to be thinking through a balance-sheet lens,” he says. “They’re going to [examine] all kinds of demographic angles on who the buyers of [these vehicles are and] how heavy they want to go after it.”

But when it comes to risk, “their rating is going to be their rating,” Mitchell says. “And, in the short term, they may have to “make some guesses and [use proxies] until they get three years of data under their belt and can start to evidence-based file for the changes.”

Brokers will need to read how the market may change and prepare for new discussions and customer profiles, Mitchell says. A larger share of EVs on the roads, and an increasing array of vehicle features, could require some variations in how brokers relate to customers and prospects.

Related: Electric vehicle claims keep rising in Canada

Insurance models may also shift in response to EV features, including self-driving modes. Mitchell uses the example of U.S. subscription-based insurer Lemonade, which announced Jan. 29 that it’s giving 50% discounts to Tesla drivers for every mile driven using that automaker’s full-self-driving mode.

“This could be the beginning of a wave of other things starting to happen, where self driving cars become a different rate outside of possibly the broker or the domestic market channel,” says Mitchell. “You could have more embedded insurance. We’ll see.”

For now, Canadian provinces generally require drivers using autopilot systems to stay engaged with the vehicle. Some provinces are permitting pilot programs to test self-driving trucks and delivery vehicles.

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Mitchell and others in the industry note proliferation of cell phone use and screens inside cars adds to the ways drivers can become distracted. That said, CU’s sources say multimillion-dollar verdicts for plaintiffs injured in accidents involving sell-driving cars are less likely to happen in Canada due to higher legal thresholds for proving product liability compared to the U.S.

For more minor collisions, Mitchell tells CU, the technologies enabling self-driving systems also raise parts prices when cars require repairs. That makes it difficult to handicap how minor accidents will affect insured losses as advanced EVs become more common.

“Who knows if the fender benders that do happen [essentially become] the big accidents? There are sensors in the thing, so it’s [now] a $10,000 bumper, not a $500 bumper,” he says.

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.