Why It Is More Expensive to Insure an EV

Small increases here and there can add up to much higher insurance rates.

Jared Gall | 

Jun 13, 2024 | 4 min read

Rivian

Choosing an electric vehicle over an internal-combustion engine vehicle comes with additional cost considerations, such as higher registration fees and purchasing a home charging station.

One expense in particular that might sneak up on owners is a high insurance premium. EVs can cost as much as 20% more to insure than a similar gas-powered car, for reasons ranging from obvious to surprising.

EVs Generally Cost More Than Internal-Combustion Vehicles

At its most basic, an insurance policy says: If you lose it, we'll replace it. If it'll cost more to replace, it costs more to insure. The new wave of budget-friendly EVs is bringing the average transaction price for electrics closer to that of gas-fueled cars.

As of summer 2023, buyers were paying an average of $53,376 for a new EV, which is 10% higher than the industry average of $48,334. If that latter figure seems high, that's because it is. Just 10 years ago, the average new-car transaction price was less than $32,000.

Battery Repairs Are Difficult and Expensive

Not only do they cost more to acquire, but electric vehicles also cost more to repair. Much of this is due to the difficulty and expense involved with repairing or replacing an EV's battery pack. The component accounts for so much — up to 50% — of the vehicle's cost that it often doesn't make financial sense to swap in a new one, so many insurers simply write off the car even when the damage is minimal.

Tesla has exacerbated the problem with the Model Y. The electric crossover's battery is an integral part of the vehicle structure, rendering it nearly impossible to remove and repair or replace. One engineering consultant told Reuters that a damaged Tesla Model Y pack is headed "straight to the grinder."

Tesla's new Giga Press will likely make matters worse. It streamlines production and cuts costs by casting body panels in extra-large sections. The downside is that these large body panels are expensive to replace. Tesla saves money on manufacturing, but it ends up costing the buyer more in the form of higher insurance premiums and repair bills.

There's a Shortage of Qualified EV Repair Technicians

Charging infrastructure is racing to keep up with the rapidly growing EV market, but less often talked about is the repair industry's similar lag. The high-voltage electrical systems in EVs pose a real and potentially fatal danger, forcing repair facilities to invest heavily in new equipment and training for personnel, which further increases costs as those providers look to recoup their investment. These delicate procedures and a shortage of people qualified to perform them can also contribute to EVs spending more time on average in the shop, which adds to the bill.

Insurance Companies Need More Data to Determine Appropriate Premiums

Data on EV-owner driving and charging habits is critical for the development of charging infrastructure. Similarly, data on EV collisions and repairs will be necessary to bring down electric-car insurance premiums.

In simple terms, insurance is much like gambling. Policy providers consider a number of factors pertaining to the driver, the vehicle, and even where the driver is likely to take the vehicle, and then they determine the premium based on the likelihood that the vehicle will be damaged or stolen. They hedge those bets to maintain their profits.

Since EVs are still relatively novel — accounting for just 5.8% of vehicles sold in 2022 — insurance companies simply do not have sufficient data to accurately set the odds of them being damaged or to predict the cost of repairs.

This is, however, one area where things are starting to look up. That 5.8% represents some 800,000 new electric vehicles that insurers can use to dial in their premiums, which are already trending downward as a result. As EV market share grows — many industry experts expect sales to surpass 1 million in the U.S. in 2023 — providers will eventually glean enough information to refine their rate formulas for EV owners.

How Automakers Are Responding to This Issue

Reasons like these are behind some companies' decisions to offer their own insurance. According to Marketwatch, Tesla CEO Elon Musk has said he believes insurance premiums for his vehicles are "unreasonably high" from some big insurers and that he can do better.

Rivian offers its own insurance, and Porsche has experimented with offering policies for Taycan owners in Germany. The German automaker hasn't said anything about launching a similar program here yet.

Jared Gall

Jared Gall is a car geek who fell backward into his dream job at an auto magazine. (Remember those?) He's reviewed hundreds of vehicles, raced 500-hp Mercedes-Benzes on the ice in Sweden, and was told by development driver Raffaele de Simone, "It's OK if you spin the car off" Ferrari's test track in Fiorano. He loves nothing more than cars, except maybe his dogs — who are named after trucks.