The electric vehicle (EV) market continues its upward trajectory, marking its 22nd consecutive month of growth as of May 2024, according to data from SMMT. With EVs now making up 18% of new vehicle sales, the UK motor insurance industry must adapt rapidly to the evolving landscape. As new car registrations climb and the popularity of battery electric vehicles (BEVs) grows, insurers are presented with both challenges and opportunities that will shape the market's future.
You could say that the recent EV market growth is something of a double-edged sword. In May 2024, SMMT data shows new car registrations increased by 1.7%, with 147,678 units hitting the roads. This marked the best May market performance since 2021, driven primarily by fleet car registrations, which surged by 24.2% year-on-year (YoY). However, this growth is contrasted by a decline in private and business car registrations, which fell by 11.3% and 6.3% YoY, respectively. Despite the overall increase in demand, the drop in private retail BEV registrations by 2 percentage points indicates a potential shift in consumer behaviour that insurers must consider.
The fleet sector, now a significant driver of BEV adoption, saw its volumes rise by 11%, SMMT data showed, contributing to BEVs claiming 18% of the market share. This outperformance highlights the growing importance of fleet insurance products tailored to electric vehicles, a segment that insurers must strategically target to maintain competitive advantage.
Then there’s the impact of infrastructure and vehicle value on premiums. One of the most notable trends in 2024 has been the deflation of EV insurance premiums. Following the significant inflation of 78.5% in 2023, Consumer Intelligence data reveals that EV premiums have decreased by 12 percentage points in the first half of 2024, the largest drop among all fuel types. This deflation is largely attributed to the increased price parity of older EVs and the expansion of BEV-supporting infrastructure across the UK.
The expansion of infrastructure has not only facilitated the growth of the EV market, but has also reduced the overall cost to insure these vehicles. However, regional differences have influenced premium pricing around the country. For instance the South East has the highest number of EVs on the road, 1and also saw the fastest price rises in the first half of the year with a 12% increase in premiums year-to-date. This suggests that insurers are pricing to manage risk in regions with high vehicle volumes.
Conversely, Scotland, with a public EV charging rate of 24.2 per 100,000 people, saw the most significant drop in premiums at 15%. With both premiums decreasing and strong infrastructure EVs may become more of a viable option for Scottish drivers. Should demand increase, competitive insurers may find themselves over-exposed.
The competitive dynamics among insurers have also evolved significantly in 2024. Notably, a key player’s return to the market after a hiatus has seen it reclaim a top ten spot in competitive rankings, particularly with its two of its flagship products, which showed a strong preference for EVs. Meanwhile, another provider has strategically diversified its product footprint, showing a preference for higher-value EVs across a number of its brands.
However, disparities in competitiveness between lower and higher-value EVs remain. For example, some brands have shown better competitiveness in the lower-value EV segment, whereas others have focused on higher-value EVs. This segmentation underscores the importance of tailored insurance products that cater to specific market needs, particularly as the EV market matures and diversifies.
Looking ahead, as the EV market continues to grow, insurers must remain agile, adjusting their strategies to accommodate the shifting landscape. The deflation in EV premiums and the expansion of infrastructure are positive indicators, but they also come with new challenges. Insurers must carefully balance competitive pricing with risk management, particularly in regions with varying levels of charging infrastructure.
The rise in fleet BEV adoption presents an opportunity for insurers to develop specialised products that cater to the unique needs of this growing segment. Moreover, as competitive dynamics evolve, staying attuned to market shifts and consumer preferences will be key to maintaining and growing market share in the coming years.
The first half of 2024 has been a period of significant change for the UK EV insurance market. Insurers who can navigate these changes effectively, leveraging data insights and adapting their product offerings, will be well-positioned to thrive in this dynamic environment.
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