What expanded Canadian EV manufacturing means for commercial insurers

If electric vehicle (EV) manufacturing takes off in Canada, insurers will look closely at the quality of loss engineering at those factories.

“You’re looking…at potential total insured value exposures, because there’s going to be batteries…at those plants [making them] higher in terms of potential for fire hazards. [With] those batteries stored there, coverages are going to be more,” says Clinton D’Souza, Marsh senior vice president of specialty commercial auto transportation placement.

Several factors suggest Canada could morph into an EV manufacturing hub over the long term. For example:

• some production by U.S. automakers
• gradual location of battery manufacturing plants here
• the possibility Chinese EV makers may one day manufacture in North America.

Several Asian EV makers are capturing global buyer attention. If those firms establish markets and open plants here, that could shift supply chains to the East. D’Souza says. And that might lead to “more uptake in supply chain or wholesale suppliers that will bring in these shipments and process [parts of vehicles] over here in Canada.”

Related: Can insurers set rates on Chinese EVs without risk data?

In general, D’Souza adds, any time manufacturing supplies are transported on ships, underwriters will examine not only the routes those ships take, but also how the goods being transported are cared for during transit. Such concerns will continue to be critical for marine underwriters, particularly because EV parts are expensive and specialized.

“I can see that there’s going to be more onus and more deeper underwriting in terms of these supplies that come in. And with these suppliers, you’re not only underwriting them …you’re looking at the third-party relationships – from subcontractors, sub-suppliers, and to see how that supply chain can still be maintained,” he tells Canadian Underwriter.

“There’s going to be more emphasis on that supply chain or sub-suppliers to these manufacturers when it comes to those types of parts.”

As for the shipping companies themselves, D’Souza says it’s a question of how fast they’ll be able to get up and running following site incidents. And, from a business interruption standpoint, insurers will be looking at shipping companies’ past losses, regardless of whether the goods being moved are for electric or conventional automobiles.

“Past losses always have an impact on the current price,” he says. “Plus, it’s important for shippers to do their due diligence to know the suppliers from which they’re getting goods, and have confidence that goods will actually make it onto their ships.

Related: What Chinese EVs mean for your conversations with clients

There also will be adjustments when manufacturers, and the shipping companies serving them, pivot away from routes entering Canada via Atlantic and lake ports, and toward those centred on Asia.

Shipments from Asian suppliers will likely port into Vancouver, meaning goods will have to be moved by rail and truck to plants in Ontario, Quebec or other parts of Canada. That could cause slowdowns, making business interruption an even more critical coverage for both suppliers and manufacturers.

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Longer supply chains may also extend the time goods spend in warehouses. And, over time, that could spark construction of new warehousing facilities to support demand. Underwriters can be expected to have an eye on loss control at those stopping points.

“Because…these parts [may be] susceptible to fire, obviously sprinklers are going to be critical. In terms of the underwriting of these warehouses, [we’d look at] other ways potential fire could be put out. I see that more in terms of ties back to…loss engineering, especially for these types of parts [that] will be stored in warehouses,” says D’Souza.

“One of the things that we’ll see as a major impact is going to be that if you’ve got a claim, it’s going to [cost] a little more…because [these are] very specialized parts.”

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.