The EV-olution of Mobility

Coronavirus hit us like a sack of metal potatoes. Needless to say, the human cost of the Covid-19 outbreak has been huge. But when it kept people off the streets for an extended period, the pandemic exposed the environmental impact of human activity.

The skies cleared, the air became more fresh, the waters clearer.

The images were shared enthusiastically on social media, the comments strongly pro-environment. Yet, few would disagree that it’s unrealistic to expect a permanent pause on human activity to revive the planet’s lungs. 

What could be a legacy of the pandemic, however, is a more rapid shift towards environment-friendly alternatives - not least of which are electric vehicles (EVs) to replace gas guzzlers. By 2030, over 100 million electric cars are expected on the roads worldwide compared with about 7 million now. In the backdrop of climate change, governments want them as much as consumers do.

Gain, though, is rarely without pain.

The EV-olution of mobility will bring new risks and rewards our way. In a report, corporate insurer Allianz Global Corporate & Specialty (AGCS), whose portfolio includes automotive product liability insurance, takes a holistic look...

Anatomy of an EV

So what is an electric vehicle? – A fashionable concept? An environmentalist’s birthday wish? The future of mobility? In terms of interpretation, all this and more. By definition, it’s simply a vehicle powered by electricity.

In their simplest form, EVs have been around for almost two centuries. The first electric cars were developed in the late 1800s. By the turn of the century, nearly a third of cars in the U.S. were electric powered, outselling combustion vehicles. However, EVs took a backseat to petrol cars in the 20th century as oil became cheaper and easily accessible.

Modern-day EVs are of three types: Battery EVs (BEVs), plug-in hybrid EVs (PHEVs) and hybrid EVs (HEVs). Also called all-electric vehicles, BEVs rely solely on battery power while PHEVs and HEVs use both electric power and conventional combustion engines. BEVs are the most common EVs, accounting for nearly two-thirds of the 5 million electric cars on the road in 2018. 

allianz AGCS global electric cars risks insurance

Returning to the roads

After staying in the shadows for a while, EVs have again hit the road with a vengeance. At the end of 2019, around 7.5 million electric cars were estimated to be in service globally, up from 5.1 million in 2018.

2020 was supposed to be a landmark year for EV sales. In Europe alone, potential sales of 1 million were seen...until Covid-19 introduced a speed breaker.

Sometimes slower, sometimes faster, the adoption of EVs is a global phenomenon. China currently dominates the market, owning as much as 45 percent of the global electric car fleet. Europe is a distant second with 24 percent and the United States a close third with 22 percent. Norway deserves a special mention here – in 2019, EVs accounted for as much as 56 percent of all new car sales in the Scandinavian country, driven by generous government incentives!

In the recent past, falling cost and new models have made EVs attractive to consumers. But the USP of EVs lies mainly in their carbon footprints. The emissions of an electric car are estimated to be 17-30 percent lower than those of petrol and diesel cars. As renewable energy picks up pace, their emission could drop by nearly 73 percent by 2050.

This is what makes governments share the enthusiasm of e-mobility experts as they look to meet their Paris Agreement climate change commitments. For example: the EU tightened its new car emission targets last year –  15 percent lower by 2025 and 37 percent lower by 2030.

If EV adoption continues as expected, oil demand could drop by 127 million tons by 2030. That’s about 2.5 million barrels a day!

Should the more ambitious targets be met – such as the EV30@30 campaign for 30 percent of vehicles sold annually in 2030 being EVs – there could even be 200 million electric cars on the roads by then, driven by growth in China, Europe, Japan, Canada, the U.S. and India.

allianz global electric car markets

No rewards without risks

As with anything new, an EV bring its own challenges. One of the biggest risks can lie at its very heart – the battery.

Battery life and performance are critical issues for EVs. It’s an expensive component to repair or replace, making product liability insurance an important topic for manufacturers and suppliers.

Although there is little evidence that EVs are more vulnerable to damages than conventional cars in an accident, damage to the battery could mean a much higher bill. “If the battery in an electric car has to be replaced, it can result in a total loss in many cases,” says Carsten Reinkemeyer, Head of Vehicle Technology and Safety Research at the Allianz Center for Technology (AZT) Automotive. “In addition, the fact that they can only go to specialist repair shops can contribute to costs.”

Fire poses another danger – if the electrical components and short circuits are defective, or if lithium-ion batteries combust when damaged, overcharged or exposed to excessive heat. Besides being hard to contain, high voltage battery fires could release copious amounts of toxic gases.

“Our analysis of reported claims from electric vehicles does not confirm that the technology is unsafe. However, an accident-related fire is reported much more frequently for EVs than for conventional cars, as this is more newsworthy,” says Reinkemeyer.

Although greener, EVs also pose potential liability and reputational risk for companies in relation to the environment. Tying up sustainable sources of critical components and raw material, as well as recycling and reusing material, are important topics for carmakers as production ramps up. Old and defective batteries also need proper disposal to avoid a pollution hazard.

Speed may be an attractive quality for a car but when it comes to the process of making cars, it can lead to missteps. Under pressure to accelerate the transition to e-mobility, manufacturers face potential product recalls if the combination of new technology, short development cycles and 3D/4D printing in production causes quality gaps.

Then there’s the universal threat – cyber risk. Electric cars are likely to rely on data, sensors and software including Artificial Intelligence, just like their conventional counterparts. This leaves them vulnerable to cyber issues, ranging from malicious attacks and system outages to bugs and glitches.

“In addition, EVs will consist of fewer but more integrated parts and components. What may have been three parts in a conventional car previously could be one part in an electric car today. However, the lower number of parts is increasingly connected through sensors and embedded software, adding a new layer of complexity and raising questions around how these parts interact and which producer or supplier is liable for a potential defect or faulty control,” says Daphne Ricken, Senior Underwriter Liability at AGCS.

“The increased complexity of the automotive supply chain and the reliance on software and technology producers will lead to new exposures and split liabilities in the value chain.”

For companies, another risk is of injuries to workers. Toxic fumes and fire risks during 3D printing or the handling of lithium batteries could lead to injuries, exposing companies and their insurers to claims.

allianz global electric car markets legislation

Bumps ahead

The road to e-mobility isn’t without speed bumps – most notably, those related to energy sources and charging infrastructure.

More electric cars on the road means higher electricity consumption. If EV fleet estimates for 2030 are met, we will need nearly 640 terawatt-hours (TWh) to power them. Further, if EVs account for 30 percent of all vehicles by then, the demand would rise to 1,110 TWh. For context: you have to burn 22,000 gallons of fuel oil or 150 tons of coal to generate 1 terawatt of power.

In addition, power infrastructure will have to be adapted to deliver high voltage charging points to homes and public spaces. Fire and explosion risks associated with batteries pose a danger for commercial property, especially if many cars are charged in underground car parks. 

As is clear, there are risks and there are rewards.

However, it is neither possible nor advisable to halt the transition to e-mobility. For more details on how the transition will affect insurers, click here to read the Electric Vehicles R-EV-olution: Future Risk and Insurance Implications report.

Allianz Commercial is the center of expertise and global line of Allianz Group for insuring mid-sized businesses, large enterprises and specialist risks. Among our customers are the world’s largest consumer brands, financial institutions and industry players, the global aviation and shipping industry as well as family-owned and medium enterprises which are the backbone of the economy. We also cover unique risks such as offshore wind parks, infrastructure projects or Hollywood film productions. Powered by the employees, financial strength, and network of the world’s #1 insurance brand, we work together to help our customers prepare for what’s ahead: They trust on us for providing a wide range of traditional and alternative risk transfer solutions, outstanding risk consulting and Multinational services as well as seamless claims handling. Allianz Commercial brings together the large corporate insurance business of Allianz Global Corporate & Specialty (AGCS) and the commercial insurance business of national Allianz Property & Casualty entities serving mid-sized companies. We are present in over 200 countries and territories either though our own teams or the Allianz Group network and partners. In 2022, the integrated business of Allianz Commercial generated more than €19 billion gross premium globally.

These assessments are, as always, subject to the disclaimer provided below.

The Allianz Group is one of the world's leading insurers and asset managers with around 125 million* private and corporate customers in nearly 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 746 billion euros** on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage about 1.8 trillion euros** of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we are among the leaders in the insurance industry in the Dow Jones Sustainability Index. In 2023, over 157,000 employees achieved total business volume of 161.7 billion euros and an operating profit of 14.7 billion euros for the group.
* Including non-consolidated entities with Allianz customers.
** As of March 31, 2024.

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Heidi Polke
Allianz SE
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