California’s zero-emissions mandate presents new risks for auto insurers

A state mandate in California that will require all cars sold after 2035 to be emissions-free presents a formidable challenge for auto insurers to properly assess and fully understand the risks presented by electric vehicles.

The rule passed by the California Air Resources Board comes as average wait times for collision repairs are getting longer and repair costs are rising, said Susanna Gotsch, analyst at CCC Intelligent Solutions. CCC data shows that electric vehicle repairs generally take longer and cost more.

Electric vehicles also present new types of risks. The propensity of faulty lithium batteries to ignite is well known, which is why recall notices for electric cars often come with instructions to park the vehicle outside until the fault is repaired. .

Consumers may be less aware that their vehicles can be hacked when connected to public charging stations, said Sandee Perfetto, senior manager, personal lines,

Suzanne Gotsch

product subscription solutions for Verisk. She said there is even potential for “mass hacking events” that could result in over $10 billion in losses.

California is already well ahead of the rest of the United States in electric vehicle adoption. Electric vehicles made up 15.1% of all passenger vehicles sold in the state in the first half of 2022, according to the California Auto Dealers Association, compared to 5% nationwide.

Gotsch, who is senior director of insight and analysis for CCC, said the California directive will force faster adoption of technology than market forces alone could provide. After the California Air Resources Board announced the zero-emissions mandate on August 24, the heads of state of Washington and Massachusetts announced that they would also eliminate sales of all gas-powered cars by this date.

Gotsch said the challenge for insurers is that electric cars made up only a tiny fraction of passenger auto sales until recently, meaning historical loss data is sparse.

CCC reported last month that data collected so far shows that the average vehicle repair cost of $4,041 for non-luxury electric cars was 26.6% higher than for gas-powered cars. Repair times for electric vehicles averaged 31 days compared to 28 days for gasoline vehicles.

Gostch said a mandate for a state the size of California will force automakers to adopt by offering a wider range of electric vehicles at different price points. So far, she said, electric vehicles have been geared towards the luxury, high-performance market.

Gotsch said the transformation of the internal combustion engine into battery electric power is unprecedented in automotive history. She said the closest analogy that comes to mind is the shift from unibody to body-on-frame construction during the 1980s and 1990s. Gotsch said the transition was gradual and driven by market forces, giving body shops ample time to adapt.

Insurers have no choice but to adapt. “If you’re going to underwrite cars in California, that’s the new normal.”

The government-mandated transition to electric power could be shaken up. Repair shops have a harder time recruiting new field workers. She said body repair shop owners have told her that electric vehicles aren’t inherently harder to repair, but that extensive training is needed.

“You’re talking about a whole new subset of vehicles that will have a new set of requirements,” she said.

And a whole new set of risks.

Verisk’s Perfetto said electric vehicles are part of the Internet of Things ecosystem when they connect to public charging stations, which makes them vulnerable to hackers.

Earlier this year, researchers from the University of Oxford in the UK and Armasuisse, a Swiss government agency, reported that combined charging systems used in Europe and the US can easily be attacked with standard radio equipment. The researchers said the hackers could “stealth” disable the chargers by sending a signal several meters away.

Worse still, hackers in the UK hacked into a popular electric vehicle charging network reported a vulnerability that potentially exposed the personal data of customers who used its equipment, according to Which?, a UK online news site .

ARSTechnica, a website that tracks technology, flagged the potential for harm in a July report. Joe Marshall, security researcher for Cisco Talus, said vendors that operate electric charging stations communicate over the internet to process payments and perform maintenance. But he said many vendors use poor security practices, which allow hackers to exploit interfaces, the website reported.

Perfetto said electric vehicles have another weird problem that can make car theft more likely in some cases. Many electric cars use a key fob instead of a key for security. In many models, the mirrors fold into the car when the driver leaves the vehicle with the key fob on him.

But when drivers leave the key fob in the car, the mirrors stay in the outward position. She said savvy car thieves have learned to recognize electric cars with the remotes left inside.

“It changes the level of risk for risk,” she said.

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