Will rising EV sales change auto, and car dealership, coverage?

A predicted increase in electric vehicle (EV) sales in Canada may gradually change the calculus of auto insurance, says Clinton D’Souza, senior vice president of specialty commercial auto transportation placement at Marsh.

“There’s probably going to be more leasing of these vehicles, which then brings up…a separate auto policy for short-term leasing,” he says.

If EV leasing proves more popular than outright ownership, he adds, it’s possible a recent Financial Services Regulatory Authority of Ontario rule allowing pilot programs for selling auto insurance at the dealership level could spur some vehicle retailers to dip a toe into insurance.

Related: Will Ontario auto policy sales move to car dealerships?

Tesla, for example, is known for using an embedded insurance strategy. So, if other makers follow suit, the timing could be right for more insurance products being sold alongside vehicles at car dealerships.

“I think that will also help drive more uptake down the road for these types of automobiles [if the] insurance is embedded into the purchase process,” says D’Souza.

Greater EV uptake could also impact auto underwriting, he adds, noting most insurers in Canada rely on the Canadian Loss Experience Automobile Rating (CLEAR) system to determine premium levels for specific vehicle makes and models. That’s potentially problematic for EV claims data because uptake for those vehicles in Canada has, so far, been gradual.

Related: What expanded Canadian EV manufacturing means for commercial insurers

“In terms of…how the underwriting is going to be done…we don’t have a lot of data on electric vehicles,” he tells CU.

“Where insurers [and] brokers have to play a role is, you’re going to have to look to see how other regions’ [experiences have been] in terms of electric [vehicles] – how the underwriting has been done – and then take it and use it for Canada based on potential claims cost.”

Increased EV sales could also impact auto dealerships, which will need to educate customers about the insurance impacts of EVs, and possibly offer add-on coverages.

“There’s a lot of auto dealership programs across the country [and we could] see more services that those dealers would want to upsell in terms of a warranty type of product,” D’Souza says. Regulators in various provinces are examining how they treat warranty coverages sold at auto dealerships for things like paint scrapes and other cosmetic issues.

Related: Can car dealerships manage insurance risks from vehicle thefts?

Auto retailers will also have to revisit their business-level risk management efforts.

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As EV sales rise, car sales lots will have large numbers of batteries that can be fire-prone under certain conditions, inside garages and other parts of their facilities. Insurers will be looking to see if dealerships keep a close eye on loss control.

“It will be…underwritten as an auto dealer [but] there will be more exposure and risk potentially, in terms of these vehicles’ batteries,” he says.

Insurers also will continue to expect auto dealers to maintain longstanding general risk management efforts, like onsite security, including installation and monitoring cameras to prevent vandalism and deter vehicle theft.

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.