[REPORT] Against the current #2. Will electric cars cause liability insurance prices to rise?

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  • European environmental regulations impose particular actions on member states. Binding targets have been set, which include achieving climate neutrality by 2050 or reducing greenhouse gas emissions by at least 55 percent by 2030 compared to levels from 1990. One of the measures to achieve them included in the “Fit for 55” package is a ban on new vehicles with internal combustion engines starting from 2035.
  • Restrictive goals and the short timeframe for achieving them are being criticized, also by representatives of the Polish government, but steps are being taken to promote electromobility. One of them is the “My Electrician” program planned for 2021-2026. It allows a subsidy for the purchase or lease of zero-emission vehicles. The program’s budget includes PLN 98 million, and a single grant can range from PLN 18,750 to PLN 27,000.
  • Prior to the program’s launch in June 2021, there were 13,119 electric vehicles, and after a full year of subsidies, the number rose to 25,549 in August 2021. Thus, about 25 percent of new cars in this period were purchased using government subsidies.
  • It should also be noted that with Poland’s current and planned energy mix for the next 10 years, replacing internal combustion cars with electric ones may not ensure a reduction in carbon emissions, and may even increase them. This is due to the use of coal and gas to generate electricity to power the vehicles. Thus, the promotion of electric cars today cannot be considered adequate or unquestionably beneficial to the environment, as we wrote in the report “Against the Current” published in October 2021.
  • The cost of raw materials used in the production of electric cars leads to much higher prices. In 2022, the weighted average price for passenger cars in general was PLN 151,541 (up 13.6 percent from the previous year), while the same value for electrics was PLN 245,034 (up 23.8 percent).
  • Electric vehicles also have higher insurance settlement costs, due to the higher cost of repairs and providing a replacement car. There is a shortage of specialized establishments that provide adequate services, which contributes to the high salaries of mechanics. On the other hand, raw material costs also affect higher prices for spare parts. This results in situations where it may not be cost-effective to repair minor damage. This is shown by the example of Norway, where many electric cars are scrapped even though they could probably be repaired.
  • The factors indicated could significantly affect the market for liability insurance, which is mandatory for all car owners. In recent years, insurance policy prices have been declining despite inflation, likely due to competition among insurers. Currently, the beginnings of a halt to price declines and increases in some groups of drivers are already being observed.
  • Considering macroeconomic factors, the operation of insurers on the brink of profitability or new regulatory requirements, it can be expected that increases are inevitable and should be observed in the near future. An additional factor that could exacerbate them is the fake increase in demand for electric cars.
  • The proliferation of electric cars will increase the average cost of damage liquidation, because in their case the cost of repairs and providing a replacement vehicle is significantly higher. The more electric cars on Polish roads, the greater the chance that they will be involved in an accident, the cost of which will have to be covered by the insurer. A simplified estimate of the development of liability insurance premiums, taking into account inflation and the increase in the number of electric cars, indicates a successive increase in prices by several percent year-on-year. According to the predictions, premiums could almost double over the next few years. As a result of the overall increase in car prices and the increasing share of electric cars, the total increase in the cost of liability insurance could be about 15 billion zlotys more in 2031 than in 2022.
  • Thus, government interventions affecting the demand for electric cars, but also limiting the registration of new combustion cars in as little as a decade or so, could lead to excess increases in the price of third-party liability policies. The top-down impact on demand for electric vehicles should accelerate the upward trend, making the increases more likely to be experienced by drivers.

 

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