Growth of electric cars comes with a host of new risks and claims scenarios for manufacturers, suppliers and insurers
- Government policies on climate change and consumer demand could see the number of electric cars reach 100 million by start of next decade compared with seven million today.
- New risk challenges to manage for automotive industry and their insurers: potential defect and performance issues; more complex and costly repairs; new fire and cyber threats; and even sustainable sourcing and disposal of critical components and raw materials. I
- Increasing complexity of supply chains and use of new technology will have a strong impact on product liability insurance in the commercial insurance segment.
Johannesburg/London/Munich/New York/Paris/Sao Paulo/Singapore?
Around the globe, the take-up of electric cars is expected to accelerate rapidly in future, driven by consumer demand and government policies aimed at tackling climate change. The future of mobility is clearly electric, but the transition will lead to a fundamental change in risk for manufacturers, suppliers and insurers alike and will have a significant impact on automotive product liability insurance, according to a new report from insurer Allianz Global Corporate & Specialty (AGCS).
From supply chain networks to production processes to the product itself ? the automotive industry will have to respond to many emerging risks to make the transition to electric vehicles happen,? says Daphne Ricken, Senior Underwriter Liability at AGCS. ?The anticipated growth of electric cars brings the prospect of new defect or performance issues; more expensive repair costs; new fire and cyber threats; and even reputational issues around sustainable sourcing and disposal of critical components and raw materials for batteries.?
A new AGCS publication, The Electric Vehicles R-EV-olution: Future Risk And Insurance Implications[DG(1], highlights that the use of electric cars is expected to soar in future as their cost gradually declines, the choice of available new models likely doubles within five years, their driving range increases and consumers, as well as governments, demand greener low-emission vehicles. The International Energy Agency has predicted there could be more than 100 million electric cars on the roads in 2030 ? up from around seven million today ? with annual sales in the region of 20 million, driven by growth in China[DG(2] ? already the world’s largest market ? the European Union (second largest), Japan, Canada, the US and India, in particular.
New risk exposures
While the coronavirus crisis may dampen the outlook for global electric car sales for 2020 and beyond, the anticipated long-term growth also brings a range of technical and operational risks, both from a product liability perspective and in other areas:
Safety and reliability: Tests conducted by the Allianz Center for Technology Automotive (AZT Automotive) have shown that the high voltage components of electric cars are well-protected and will not be affected in most crashes. Statistical evaluation of Allianz claims also shows that electric vehicles are less likely to be involved in accidents today ? they typically drive short distances with limited mileage overall. However, any damage sustained can be, on average, more expensive than for conventional cars.
If the battery in an electric car has to be replaced, it can result in a total loss in many cases. In addition, the fact that they can only go to specialist repair shops can contribute to costs,? says Carsten Reinkemeyer, Head Of Vehicle Technology And Safety Research at AZT Automotive.
Battery life and performance are critical issues for electric cars. Given the high cost of replacement or repair of battery units, a failure to live up to performance guarantees will pose questions around liability for manufacturers and suppliers.
Fire threat: As with conventional vehicles, defective electrical components and short circuits can spark a fire, while lithium-ion batteries may combust when damaged, overcharged or subjected to high temperatures. High voltage battery fires can be very intense and difficult to extinguish, and can also release high levels of toxic gases ? such fires can take 24 hours or longer to control and be made safe. Due to the relative rarity of such fires to date, response and rescue services have limited experience of dealing with such incidents.
Environmental issues: Despite their green credentials, environmental issues can represent a potential liability and reputational risk for vehicle manufacturers and suppliers. A rapid uptake in electric cars will require manufacturers to source sustainable supplies of critical components and raw materials as they ramp up production. For example, battery technology will drive a huge increase in demand for cobalt and lithium, outstripping current supply? lithium supply has been predicted to triple by 2025. Effective recycling and reuse of materials will therefore be essential. Environmental and social concerns will also put emphasis on the sustainable sourcing of minerals, as well as traceability and transparency of supply chains. High voltage batteries could also pose a pollution risk, if not properly disposed of.
Speed to market and potential defects and recalls: Manufacturers are under pressure to accelerate the transition to electric mobility. The combination of new technology, short development cycles and new 3D/4D printing in production could result in an increase in defects and quality issues, triggering product recalls for the automotive industry ? which are already among the largest and most complex of any sector, according to AGCS claims analysis.
Cyber concerns: Electric cars are likely to have increased connectivity and reliance on data, sensors and software, including artificial intelligence, to manage vehicle systems and aid driving. As with conventional vehicles, increased connectivity is likely to give rise to cyber vulnerabilities, including the threat of malicious attacks, system outages, bugs and glitches. There have already been product recalls in the automotive sector as a result of cyber security.
Insurance implications and claims complexity
Electric mobility will have many implications for insurance? in particular automotive product liability insurance? and claims, as technology creates new risks and , and as liability shifts within the supply chain.
Electric vehicles will consist of fewer but more integrated parts and components. What may have been three parts in a conventional car could be only one part in an electric car. However, the lower number of parts is increasingly connected through sensors and embedded software, adding a new layer of complexity and raising questions around how these parts interact and which producer or supplier is liable for a potential defect or faulty control,? Ricken explains. ? The increased complexity of the automotive supply chain and the reliance on software and technology producers will lead to new exposures and split liabilities in the value chain.
Fire and explosion risks associated with high voltage batteries could give rise to claims for commercial property insurers, in particular if multiple cars are charged in underground car parks. Claim scenarios are manifold ? ranging from overheated battery leads resulting in fires and property damage to breakdown, leading to fire, as a result of electronic failure of the battery management system.
Insurers may also expect to see a potential increase in product recall/liability claims from new technologies, components, faster development times and shorter testing periods. Last, but not least, there will be employers? liability exposures ? such as potential toxic fumes and fire risks during 3D printing or the handling of lithium batteries related to fire and contamination.
About Allianz Global Corporate & Specialty SE
Allianz Global Corporate & Specialty (AGCS) SE is a leading global corporate insurance carrier and a key business unit of Allianz Group. We provide risk consultancy, Property-Casualty insurance solutions and alternative risk transfer for a wide spectrum of commercial, corporate and specialty risks across 10 dedicated lines of business.
Our customers are as diverse as business can be, ranging from Fortune Global 500 companies to small businesses, and private individuals. Among them are not only the world’s largest consumer brands, tech companies and the global aviation and shipping industry, but also wineries, satellite operators or Hollywood film productions. They all look to AGCS for smart answers to their largest and most complex risks in a dynamic, multinational business environment and trust us to deliver an outstanding claims experience.
Worldwide, AGCS operates with its own teams in 33 countries and through the Allianz Group network and partners in over 200 countries and territories, employing over 4,300 people. As one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial ratings. In 2019, AGCS generated a total of ?9.1 billion gross premium globally.
Cautionary Note Regarding Forward-Looking Statements
The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements.
Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.
The matters discussed herein may also be affected by risks and uncertainties described from time to time in Allianz SE?s filings with the U.S. Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statement.