Electric vehicles (EVs) are rapidly gaining popularity around the world due to their environmental friendliness and low cost. India, one of the world’s largest automobile markets, has seen an increase in the adoption of electric vehicles in recent years. Because of the increased adoption of electric vehicles, India’s insurance industry has had to evolve and adapt to meet the unique needs of electric vehicle owners.
India saw a 404% increase in the sales of electric two-wheelers between April and September 2022, and a 268% increase in the sales of electric automobiles in H1 FY 2022-23.
The Indian electric vehicle market is expected to reach US$47 billion by 2026. The Indian government is encouraging the use of electric vehicles through policies and incentives. India aims to increase electric vehicle sales by 30% by 2030 and has introduced several incentive programmes, including one for local battery manufacturing.India electric vehicle market is projected to grow from $3.21 billion in 2022 to $113.99 billion by 2029 at a CAGR of 66.52% in forecast period, 2022-2029
According to the Economic Survey 2023, the domestic electric vehicle market will grow at a compound annual growth rate of 49% between 2022 and 2030, with 10 million annual sales by 2030. General insurance companies, such as Bajaj Allianz General and HDFC ERGO, have set up dedicated portals that offer specialised services for electric vehicles. The following graph1 below shows the predication of India’s electric vehicle market size from 2018 to 2040 in USD Billion
Graph 1: Predication of India’s Electric Vehicle Market Size from 2018 to 2040 in USD Billion
Rising fuel prices, environmental concerns, low maintenance costs, and government incentives are driving electric vehicle adoption in India. Because of the advanced technologies and components used in EVs, appropriate EV insurance is critical. Motor insurance products available from insurers include standalone third-party cover, own-damage cover, comprehensive cover, and bundled long-term cover for new vehicles. Pay As You Drive (PAYD) and Pay How You Drive (PHYD) add-ons can help customers save money on premiums. With low operating costs and environmental friendliness, EVs are expected to be more affordable in the long run than gasoline and diesel vehicles.
DRIVING FACTORS OF EV
In India, rising fossil fuel prices are one of the major factors expected to drive demand for electric vehicles. Vehicles powered by fossil fuels are less expensive to buy than EVs. Their operating costs, however, are high due to rising petrol and diesel prices. In comparison, the operating costs of electric vehicles are significantly lower than those of fossil-fuel-powered vehicles. As a result, shifting consumer preferences towards electric vehicles in response to rising fossil fuel prices is expected to boost market growth over the forecast period.
Furthermore, the government’s emphasis on combating climate change by tightening emission control standards and implementing scrapping policies for conventional vehicles is expected to drive market growth in the coming years.
Since the Indian automotive market is price-sensitive, a consistent decrease in the cost of lithium-ion batteries has a positive impact on market growth. Battery cost reduction is a critical driver for EV adoption, as it lowers the total cost of operation (TCO) parity and the high upfront costs of EVs in India. Battery costs have dropped by around 85% in the last decade, resulting in greater EV adoption across all vehicle categories. Furthermore, the battery cost USD 1200 per kWh in 2010 and has dropped dramatically to USD 130-150 per kWh in 2021 due to scale in operations, changes in cell chemistries, and a variety of other factors.
Electric vehicle penetration in India remains low when compared to other countries. Consumer awareness is also extremely low. As a result, recent fire accidents in the electric two-wheelers of leading players such as Ola Electric, Pure EV, and Okinawa have raised concerns about the safety of using these vehicles. The Indian government also investigated the EV models from these leading brands to determine the root cause and those responsible for these safety flaws. Furthermore, one of the major barriers to the region’s adoption of electric vehicles is India’s lack of a well-established EV ecosystem.
The market is divided into four-wheelers, three-wheelers, and two-wheelers based on platform. During the forecast period, the four-vehicle market is expected to gain a significant share of the India electric vehicle market. The rapid adoption of four-wheel drive vehicles throughout the region is expected to fuel the industry’s growth due to the lower cost of ownership compared to internal combustion engines. Following table 1 shows the classification of vehicles
Table 1: Classification of Vehicles
Insurance companies have begun to provide additional services and coverage for electric vehicles, such as roadside assistance, medical assistance, and dedicated coverage.
The Indian e-bike market is expected to grow from approximately INR 3 billion in 2019 to 17 billion or more by 2024. More electric two-wheelers were sold in the first six months of this year than in the entire previous year. With an expected growth rate of more than 42%, the future appears to be as bright as the present.
The changing footprints of electric bikes across the country can be attributed to a variety of factors. Rising fuel prices, pollution concerns, lower maintenance costs, government initiatives, better subsidies, and charging infrastructure for E-Vehicles are just a few examples.
ADVANTAGES OF EV INSURANCE
The advantages of EV insurance is illustrated in the figure 1 below:
Figure 1: Advantages of EV Insurance
GOVERENTMENT INCENTIVES FOR ENCOURAGING EVs:
The Indian government has set a target of electrifying 30% of the country’s vehicle fleet by 2030 and has implemented the following incentives and policies to support the growth of the EV industry.
According to the Motor Vehicles Act of 1988, electric vehicles must be insured under a third-party liability insurance policy.
The Indian government has announced tax breaks for electric vehicle owners, and the Insurance Regulatory and Development Authority of India (IRDAI) has mandated lower third-party liability premium rates for electric vehicle insurance. Electric and hybrid electric vehicles are eligible for premium discounts of approximately 15% and 7.5%, respectively.
The AME India Scheme: Faster Adoption & Manufacturing of Electric Vehicles (FAME) India was launched in 2015 with the goal of encouraging the growth and early adoption of hybrid and electric vehicles in the country.
The FAME India project was launched to promote electric vehicles and discourage the use of gasoline and diesel vehicles in India.
The FAME-II scheme, with a budget of US$ 1.3 billion (Rs. 10,000 crore), was launched in India to support 1 million e-two-wheelers, 0.5 million e-three-wheelers, 55,000 e-passenger vehicles, and 7,000 e-buses. The scheme was extended by the government until 2024, as announced in the Union Budget 2022-23.
In September 2021, the Cabinet approved a production-linked incentive programme for the automobile industry to promote the development of electric and hydrogen fuel cell vehicles. In addition, there is a scheme for Advanced Chemistry Cell Battery Storage (PLI-ACC). The plan is to improve India’s battery infrastructure. According to the Union Budget, the total cost of the scheme is US$ 2.45 billion (Rs 18,100 crore), which will be distributed to beneficiaries over a five-year period once the manufacturing facility is operational.
Battery Swapping Policy: For EV adoption to be successful, a widespread charging infrastructure is required. In this regard, NITI Aayog issued a draught battery swapping policy on April 22, 2022, which will be in effect until March 31, 2025. The policy will be implemented over a period of 1-2 years from the date of its launch, and it will apply to all metropolitan cities with populations of more than four million people. The second phase will be implemented over a period of 2-3 years following the policy’s launch and will cover all UTs and major cities with populations greater than 500,000
Other Initiatives- Tax exemption of up to Rs.1,50,000 (US$ 1,960) under income tax section 80EEB when purchasing an EV (2W or 4W) on loan. Customs duty on nickel ore (a key component of lithium-ion batteries) is reduced from 5% to 0%. The following table 2 shows motor third party premium for EVs and regular vehicles for financial year (FY)-2022’-23
Table 1: Motor Third Party Premium for EVs and Regular Vehicles for FY 2022-23
- SHORT TERM PREMIUM RATES:
- Four wheelers:
|Private Four Wheeler (single year single premium)||Rate (Rs)|
|Upto 1000 cc||2,094|
|From 1000cc to 1500cc||3,416|
|More than 1500 cc||7,897|
|Private EV four wheeler (single year premium )||Rate (Rs)|
|Upto 30 kw||1,780|
|From 30 kw to 65 kw||2,904|
|More than 65 kw||6,712|
- Two wheelers
|Private two wheeler (single year premium )||Rate (Rs)|
|Upto 75 cc||538|
|From 75cc to 150 cc||714|
|From 150 cc to 350 cc||1,366|
|More than 350 cc||2,804|
|Private EV two wheeler ( single year premium )||Rate (Rs)|
|Upto 3 kw||457|
|from 3 kw to 7 kw||607|
|From 7kw to 16 kw||1,161|
|More than 16 kw||2,383|
- LONG TERM PREMIUM RATES:
- Four wheelers:
|New private four wheeler ( 3 years single premium )||Rate (Rs)|
|From 1000 cc to 1500 cc||10,640|
|More than 1500 cc||24,596|
|New private EV four wheeler (3 year single premium )||Rate (Rs)|
|Upto 30 kw||5,543|
|From 30 kw to 65 kw||9,044|
|More than 65 kw||20,907|
- Two wheelers:
|New two wheeler ( 5 year single premium )||Rate (Rs)|
|Upto 75 cc||2,901|
|From 75cc to 150 cc||3,851|
|From 150cc to 350 cc||7,365|
|More than 350 cc||15,117|
|New EV two wheeler ( 5year single premium )||Rate(Rs)|
|From 3kw to 7 kw||3,273|
|From 7 kw to 16 kw||6,260|
|More than 16kw||12,849|
Experts are concerned about the recent increase in premium rates for two-wheelers, particularly those with less than 75 CC, because the upfront payment for five years and GST may have an impact on demand. While premium rates for four-wheelers have increased minimally, the same cannot be said for two-wheelers. The automobile industry is already in a slump, and this increase in premiums could exacerbate the situation, affecting both vehicle sales and the insurance sector, whereas all the third party premium rates in the above categories are less than that of the regular (petrol and fossil fuel) vehicles, which can lead to more demand of electric vehicles.
In the year ended March 31, 2023EV sales in the country crossed 1.18 million, representing 5% of total automobile sales. Two- and three-wheelers were the primary contributors to the surge, with fleet operators and individuals being the main buyers. In March, 2023EV retail sales reached a new monthly record of 140,509 units.
RECENT TRENDS IN MOTOR INSURANCE
Edelweiss General Insurance began operations two years ago, with auto insurance as a primary focus, and has since introduced new age offerings to its customers.
SWITCH, a driver-based insurance model in which insurance is calculated based on the driver’s age and experience, employs a pay-as-you-use model that allows the customer to pay the premium only on the days they use the vehicle. This provides significant cost savings as well as convenience.
Customers can use the insurance company’s app to turn on and off their policy coverage based on whether they are driving that day. Furthermore, while the policy covers accidental damage when activated, vehicles are covered against fire and theft throughout the year, even if the policy is turned off at the time.
People have gradually begun to consider contactless or zero touch services in which they do not need to make physical contact with a third party. With its pre-inspection benefit, paperless insurance, and cloud-based service, insurance companies such as Digit, which has a 2.6% overall market share for motor insurance in India as of June 2020, provide a zero-touch experience.
Due to inefficiencies and challenges in the existing transportation ecosystem, an increasing number of commercial vehicles are opting for telematics solutions.
Telematics is a technology that allows for the tracking, storage, and transfer of driving data. Telematics can be used in the auto insurance industry to charge personalised premiums based on a driver’s risk profile. This is in contrast to traditional car insurance policies, which are primarily based on the model of the vehicle. The Insurance Regulatory and Development Authority of India (IRDAI) is encouraging insurers to provide usage-based car insurance policies, which are expected to grow in popularity in the future. However, there are barriers to widespread adoption, such as the requirement for tracking devices in automobiles. Some businesses also use a plug-in USB to map data.
More than 25 Indian companies, including Mahindra & Mahindra, Volvo, Shell, and clean mobility start-ups, are requesting government assistance in order to meet a target of at least 65% of all new vehicle sales being electric by 2030. The World Business Council for Sustainable Development (WBCSD) is leading the charge, and it is the first collective effort by Indian companies to transition to clean mobility.
The announcement comes ahead of a United Nations climate change conference, which is expected to spur more government commitments to combat global warming. Meeting the 2030 target could generate a $200 billion investment opportunity and reduce India’s road transport emissions by 15%. India has some of the most polluted cities in the world, and the government has encouraged automakers to switch to EVs in order to clean the air and reduce costly oil imports. Companies, on the other hand, have been slow to adapt due to high EV prices and insufficient charging infrastructure. The Indian government is taking steps towards a cleaner and greener transportation system, such as the new battery-swapping policy with interoperability standards announced in the Union Budget for 2022. This trend is expected to continue.
In India, the electric vehicle (EV) insurance industry is seeing steady growth and significant developments. As EV adoption grows, insurers are tailoring policies, collaborating with original equipment manufacturers (OEMs), and mitigating risk factors related to batteries and technology. The implementation of improved telematics enables the collection of data on driving behaviour, resulting in premium democratisation. These advancements are driving the purchase of EV insurance policies, in addition to promoting safe driving practises. With the successful culmination of these efforts, India’s EV insurance sector is poised for continued growth, contributing to a cleaner and more sustainable mode of transportation.