Toronto, Ontario — A new report from credit rating agency Morningstar DBRS suggests that electric vehicle (EV) owners in Canada may see higher insurance rates in the coming years.
The study specifically looked at data from the United Kingdom, Europe, and the United States where EV adoption rates have historically been higher than in Canada. The report notes that these areas are starting to experience higher EV insurance claim costs and that Canada could soon see similar trends.
EV owners in the United Kingdom already face higher premium rates and, in some instances, are even denied coverage as insurers adjust pricing models, notes Morningstar. The firm adds that similar trends could manifest in Canada over time.
“The rates (in Canada) haven’t changed significantly when compared to regular internal combustion engine cars. It’s still the same, and the reason is that there’s a low uptake of electric cars in Canada compared to Europe, the U.S. and other jurisdictions,” said the report’s co-author, Victor Adesanya, vice president of insurance credit ratings at Morningstar DBRS.
“Right now, it’s not an issue, because they have fewer cars on the road, but as time goes on, then it could be an issue.”
Since EVs are relatively new to the market, insurers do not have enough claims data to accurately estimate lifecycle durability, maintenance and repair costs, said Morningstar DBRS.
Other reasons for higher rates in Canada are that EVs cost more to purchase and so cost more to insure. EVs also have fewer serviceable parts compared with internal combustion engine vehicles, which suggests that maintenance costs should be lower. However, the report indicates other factors, like the cost to replace battery packs, the availability of replacement parts and the scarcity of skilled technicians will affect the price of repairs and ultimately insurance rates in the short run.
The report concludes that it is unlikely that Canadian EV owners will see a sudden shock in rates, but rather a gradual increase, and that it will take roughly five to ten years before insurance companies have enough data for rates to stabilize.
“For EV drivers in Canada, a silver lining might be found in the highly regulated Canadian automobile insurance industry,” notes Adesanya, adding the provincial governments are responsible for the regulation of auto insurance policies, claims handling and dispute resolution.
“This could help mitigate the impact of insurance rate increases on the finances of EV owners on renewal or when an EV is registered for the first time. However, we expect that auto insurance rates will trend upward over time as insurers generate more claims data for EVs and reflect that experience in their pricing.”
Morningstar does not expect EVs will affect insurers’ profitability or credit ratings in the near to medium term because “Canadian insurers are well capitalized and are relatively able to adjust pricing to preserve profitability.”
