Are EVs and Hybrids More Expensive to Insure Versus ICE Vehicles? Mercury Insurance Expert Explains

Rhea-AI Summary

Mercury Insurance expert Chong Gao discusses the total cost of ownership for different vehicle types, highlighting that EVs are typically 20% more expensive to insure than ICE vehicles and also costlier than hybrids. The article compares fueling/charging costs, maintenance, and insurance for ICE, hybrid, and electric vehicles.

Key points include:

• Hybrids offer better fuel efficiency than ICE vehicles
• 80% of EV charging is done at home, which is convenient but may require installation costs
• EVs have lower routine maintenance costs but may need more frequent tire replacements
• EV insurance costs are higher due to higher purchase prices and specialized repair needs

The best vehicle choice depends on individual budget, lifestyle, and preferences.

Positive

• Mercury Insurance provides insights on total cost of ownership for different vehicle types
• The company offers auto insurance through 4,100 employees and 6,500 independent agents in 11 states

Negative

• EVs are typically 20% more expensive to insure compared to ICE vehicles
• EV insurance costs may offset potential savings from reduced maintenance and fueling costs

Insights

Insurance Industry Analyst

The article highlights significant differences in insurance costs across vehicle types, with EVs costing about 20% more to insure than ICE vehicles. This disparity is attributed to higher purchase prices, repair costs and specialized maintenance needs for EVs. However, the long-term trend suggests these costs may equalize as EV adoption increases and insurers gather more data.

For investors in insurance companies like Mercury Insurance (MCY), this presents both opportunities and challenges. The higher premiums for EVs could boost short-term revenues, but insurers must also manage potentially higher claim costs. As the auto market shifts towards electrification, companies that can accurately price EV risks and adapt their underwriting models will likely gain a competitive edge.

The article also touches on the total cost of ownership, which is important for consumer decision-making. Insurers that can offer comprehensive, tailored policies for different vehicle types may attract more customers. This could lead to increased market share and customer retention for well-positioned insurance providers.

Automotive Industry Expert

The article provides valuable insights into the evolving automotive landscape, comparing ICE, hybrid and EV ownership costs. While EVs offer lower operating and maintenance costs, their higher insurance premiums and initial purchase prices present barriers to adoption. This complex cost structure affects consumer choices and, consequently, automakers' strategies.

For investors in auto manufacturers, the transition to EVs isn't just about technology but also about managing the total cost of ownership for consumers. Companies that can reduce EV production costs, thereby lowering purchase prices and insurance premiums, may gain a significant market advantage. The hybrid market remains relevant as a transitional technology, offering fuel efficiency without the higher insurance costs of full EVs.

The article also highlights the importance of charging infrastructure. Auto companies investing in home charging solutions or partnering with charging networks could see increased consumer interest. The poor satisfaction with public charging presents an opportunity for companies to differentiate themselves by addressing this pain point.

EVs Offer Lower Operating Costs Compared With ICE and Hybrid Vehicles, but Cost More to Insure

LOS ANGELES, Sept. 23, 2024 /PRNewswire/ -- With a variety of powertrain options on the market, consumers who are shopping for a new vehicle have a lot to mull over these days. Buy another internal combustion engine (ICE) vehicle? Go fully electric? What about a hybrid? Regardless of vehicle type, it's important for shoppers to understand the total cost of ownership before making a commitment, as this will help minimize unexpected expenses and headaches down the road. 

"The 'total cost of ownership' equation includes factors like insurance premiums, fuel efficiency, repair expenses and home charging infrastructure if purchasing an electric vehicle (EV), among other aspects," said Chong Gao, director of product management R&D at Mercury Insurance. "An EV, for example, might seem appealing for its expected fuel savings and lower maintenance costs, but insurance for them is on average 20% higher compared with an ICE vehicle, and they are typically more expensive to insure versus hybrids as well. However, as more people adopt EVs and insurance companies gather more data in the future, their insurance costs will likely even out."

When deciding between an ICE vehicle, hybrid or EV, here are some important distinctions to keep in mind:

Fueling/charging costs: Because hybrid vehicles have both a gas engine and electric motor, they are more fuel efficient than strictly ICE vehicles, as they can switch between the two motors while driving. Additionally, hybrids never need to be plugged in because the battery is recharged via the gas engine, eliminating the need to install home charging or navigate public chargers.

When it comes to charging EVs, the Department of Energy reports that about 80% of all charging is done at home, which J.D. Power notes is the ultimate convenience and most satisfying aspect of EV ownership. There are two types of EV charging solutions available for the home, both detailed here. Consumers should be aware that they will need to consult an electrician to install a Level 2 charger, but some states and localities offer incentives to help cover the cost. Consumers should also be aware that satisfaction with public EV charging overall is still poor, according to many industry reports.

Maintenance: When it comes to maintenance for ICE and hybrid vehicles, there are several upkeep items that can add to the cost of ownership over time, such as air filters and oil changes. Both require similar maintenance schedules and incur comparable costs. One notable exception is that a hybrid's battery will eventually need replacement, which can be costly, but United States law requires that all hybrids come with battery warranties of at least eight years or 100,000 miles, which should offer consumers peace of mind if they plan to keep the vehicle over the long term.

EVs, on the other hand, do not need many of these routine services as they lack an internal combustion engine, pistons, valves and moving parts. This can result in lower routine repair and maintenance costs compared with ICE and hybrid vehicles, but J.D. Power reports that EV owners replace tires more frequently than others. And like hybrids, the EV battery will also need to be replaced down the road, but all new EVs come with a generous battery warranty.

Insurance: While EVs may offer a number of advantages in terms of reduced maintenance and fueling costs, the cost of insurance might offset these potential savings. "EVs cost more to insure versus their ICE counterparts because they generally cost more to buy, and consequently more to repair or replace," said Stephen Crewdson, senior director of insurance business intelligence at J.D. Power. "And while today's EVs have fewer moving parts, it can be costly when they need replacement. If the battery pack is damaged, for example, the battery itself is a large expense and certain safety protocols are often necessary, which leads to a higher repair bill. Plus, there aren't as many repair shops with technicians trained to work on EVs, which means these facilities can charge more for the specialized knowledge they provide."

"The best vehicle type for a particular consumer will ultimately come down to budget, lifestyle factors and personal preference. Hybrids serve as a great bridge between ICE and EVs by offering fuel efficiency and a reduced carbon footprint for consumers who aren't yet ready to make the leap to an EV," said Gao.

Headquartered in Los Angeles, Mercury Insurance provides auto, homeowners and business insurance through nearly 4,100 employees and a network of more than 6,500 independent agents in 11 states.

About Mercury Insurance

Mercury Insurance (NYSE: MCY) is a multiple-line insurance carrier offering personal auto, homeowners, and renters insurance directly to consumers and through a network of independent agents in Arizona, California, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas and Virginia, as well as auto insurance in Florida. Mercury also writes business owners, business auto, landlord, commercial multi-peril and mechanical protection insurance in various states.

Since 1962, Mercury has provided customers with tremendous value for their insurance dollar by pairing ultra-competitive rates with excellent customer service. Mercury has earned "A" ratings from A.M. Best and Fitch, as well as "Best Auto Insurance Company" designations from Forbes and Insure.com. For more information visit www.MercuryInsurance.com or follow the company on Twitter or Facebook.

 

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SOURCE Mercury Insurance

FAQ

How much more expensive is EV insurance compared to ICE vehicles?

According to the Mercury Insurance expert, EV insurance is on average 20% higher compared to ICE vehicles.

Why are EVs more expensive to insure than ICE vehicles?

EVs cost more to insure because they generally have higher purchase prices, are more expensive to repair or replace, and require specialized knowledge for repairs, which can lead to higher repair bills.

What percentage of EV charging is done at home?

According to the Department of Energy, about 80% of all EV charging is done at home.

How do maintenance costs compare between EVs and ICE vehicles?

EVs generally have lower routine repair and maintenance costs compared to ICE vehicles due to fewer moving parts. However, EVs may require more frequent tire replacements.