The adoption of electric cars has accelerated rapidly in the recent past as consumer demands shift towards technology and more governments give prominence policies aimed at addressing climate change.
While the future of mobility is clearly electric, analysts say the transition will lead to a fundamental change in risk for manufacturers, suppliers and insurers alike and that will have a significant impact on automotive product liability insurance.
“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,” noted Daphne Ricken, a senior underwriter at Allianz Global Corporate & Specialty (AGCS), adding that the anticipated growth of electric cars brings the prospect of new defects and performance issues.
“We will see 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,” she said.
The International Energy Agency has predicted there could be more than 100 million electric cars on global roads by 2030 – up from 7 million today – with annual sales in the region of 20 million units. This will mean more electric cars will be seen on African roads, with South Africa, Kenya, Nigeria and Egypt leading the way.
While the Covid-19 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.
Tests conducted by the Allianz Center for Technology 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,” stated 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 challenges around liability for manufacturers and suppliers.
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.
Despite their green credentials, environmental issues can represent a potential liability and reputational risk for vehicle manufacturers and suppliers.
A survey by AGCS entitled The Electric Vehicles R-EV-olution: Future Risk and Insurance Implications Report, released in 2020, said the use of electric cars is expected to soar in future as their cost gradually declines, with the choice of available new models likely to double within five years.
A rapid uptake in electric cars will require manufacturers to source sustainable supplies of critical components and raw materials as they ramp up production.
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.
Manufacturers are under pressure to accelerate the transition to electric mobility. The combination of new technology, short development cycles and new 3D and 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.
Electric cars are likely to have increased connectivity and reliance on Big 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.
Electric mobility will have many implications for insurance – in particular automotive product liability insurance – and claims, as technology creates new risks and exposures, 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,” Ms Ricken said.
She notes that 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.