Explained: The UK’s Chinese electric vehicle insurance quandary
If the UK needed any more evidence of China’s growing dominance in the electric vehicle space, the Beijing Motor Show has provided it.
In China’s capital this week, the show has played host to the likes of BYD, Nio, and Great Wall Motor, which have already begun flooding Western markets with dirt-cheap electric vehicles. Models from BYD typically sell for around £25,000 in the UK, while the new Tesla Model 3 costs £39,000.
Beyond threatening traditional Western automakers like Ford and Stellantis, the influx of electric vehicles has posed several problems for the market. For example, European ports are in chaos as Chinese electric vehicles stack up while officials await importers’ proof of onward transport.
However, it has also posed some key issues for British insurers at a time when electric vehicles are bumping up the cost of premiums as a whole.
Experts told Morning Wire in March that UK motorists were being priced out of owning Chinese electric cars due to “sky high” insurance costs. In the same month, Auto Express found that UK drivers of the two BYD and GWM Ora were facing especially steep quotes for cover as insurers refused to underwrite them.
A lack of replacement parts is one issue. However, manufacturers of electric vehicles and insurers are also struggling to cooperate effectively as everything is so new.
“The main issue we’re seeing at the moment really is teething problems of a new market that’s establishing. So you’ve got brands that are established in China coming into a UK marketplace that they don’t understand,” Ben Townsend, head of automotive at Thatcham, told Morning Wire in an interview.
“How insurance and repair works in Europe is very very different to how insurance and repair works in China.”
Poor cooperation has fuelled a lack of repair data availability, quality, and the availability of the right kind of spare parts at speed, added Townsend.
The ability to deliver replacement components at a rapid pace is critical to keeping prices low due to the cost of hire car replacements and keeping a claim open. This is made more difficult considering Chinese firms don’t have the legacy dealer networks of other brands to rely on for parts.
British insurers have remained tight-lipped so far. The industry’s representative body, the ABI, declined to comment. Not one major insurer approached by Morning Wire provided further details of any kind.
Yet providers have become increasingly nervous, especially considering the instability in the wider market.
Covid massively disrupted supply chains, while looming low emissions regulations have caused a lot of flux in the marketplace.
Mechanic panic
As automakers increasingly switch to electric vehicles, the insurance and repair industry has struggled due to a shortage of skilled mechanics.
Batteries in particular are notoriously difficult, meaning insurers are to take the uneconomical decision to replace them entirely.
According to the Institute of the Motor Industry, less than 10 per cent of British mechanics are qualified to work on electric vehicles.
Irene Castelanotti, marketing director at Autodata, told Morning Wire the influx of Chinese electric vehicles was “contributing to this challenge.”
“They are complex to repair and mechanics have only recently been able to access the necessary information, following a ruling by the European Court of Justice. Whilst this should make things easier for technicians and drivers alike, owners of these cars are facing higher repair costs due to expensive parts.”
“We need to find a way to keep Chinese EV repairs safe without making the process so expensive for both consumers and technicians.”
All of this falls against a backdrop of inflation massively bumping up repair costs across the board, which sent car insurance premiums to record-high levels in the UK last year.
“The whole marketplace has been shaken up quite a lot,” Townsend said. “If you then bring on top of that, these new entrants in the marketplace that don’t have some of the history and the models, that’s causing nervousness amongst insurers.”
“The whole marketplace has been shaken up quite a lot… If you then bring on top of that, these new entrants in the marketplace that don’t have some of the history and the models, that’s causing nervousness amongst insurers.”
Ben Townsend, Thatcham Research
He explained: “Insurers can only underwrite based on the knowledge that they have. When you’ve got an established vehicle manufacturer where you’ve got 40 to 60 years worth of knowledge, you’re in a good place to underwrite.”
“When you’ve got a vehicle manufacturer that established 10 years ago, which is importing cars for six months, it is a very, very difficult challenge.”
The problems for Chinese automakers will continue until the market is well established, which could take months or even years. In the UK, BYD leads the way and is currently looking at electric vehicles market share of over six per cent in the next three years.
“We’re seeing the market establishing and stepping up and our expectation is through the rest of 2024, we will start to see some stabilization,” Townsend forecast.