Struggle for market share

Will BYD or NIO Electric Vehicles become ubiquitous on UK roads? Could they be the new Ford Fiesta of the UK car parc...

As discussed in part 1 of the Electric Vehicle (EV) series, UK and EU based manufacturers are already rushing to meet government mandated deadlines to phase out ICE Vehicles and replace them with EVs to meet national emission targets. On top of this, there are further pressures for UK manufacturers to compete on price, lead-times and new battery technology.

But are they too late? Chinese manufacturers are key players in the EV revolution already and are calling for 'global EV domination'. Over the last 3 years, there has been huge growth in Chinese EV sales globally and more specifically an enormous 850% surge in exports - mainly to Europe.

BYD, the largest Chinese EV manufacturer, achieved a 15% share of the global EV market in Q2 of 2023, and has announced ambition to obtain a 6% market share in the UK in the coming years.

Despite all the media attention that surrounds Tesla and CEO Elon Musk, with the current rate of growth, BYD are set to overtake them as the largest EV provider by the end of 2023. Should UK insurers be wary of this change? After all, insurance premiums for Tesla's aren't cheap, and parts for Tesla's can have eye-watering lead times.

Electric Cars are constantly evolving

BYD are leading the way with innovation in battery technology and owning the EV value chain. They produce some of the best batteries (Blade battery cells), with ranges of up to 400 miles and don't require Cobalt and Nickel - metals with ongoing supply issues and significant environmental impacts. Instead, BYD use a Lithium iron-phosphate (LFP) cathode in their batteries, the largest mines for these raw materials are local to or owned by the EV giant (6 lithium mines purchased in 2022 to secure battery component supply for a decade) which prevents any potential supply issues. Due to their cheaper and longer range batteries, BYD have secured deals to provide batteries for Tesla and Toyota - giving them a firm grip on EV battery market.

Supply chain problems

If BYD, or a collection of Chinese manufacturers, are able to achieve global EV dominance, risks for UK insurers could massively increase due to their supply chain relying on one dominant battery producer (monopoly forms). This means a sufficient supply of batteries (and parts) for UK insurers will depend on government foreign policy with China. We have recently seen the impact on supply chains in the UK after Russia’s invasion of Ukraine...

The impact on UK insurance pricing may seem insignificant today, but supply chain issues can rapidly invalidate core inflation assumptions and result in expensive losses for UK insurers.

Claims modelling updates

Most pricing teams will state there isn't sufficient data to understand current EV claims performance, and with EVs continuing to evolve it may take decades for pricing teams to catch-up using traditional pricing processes.  

For example, the new LFP batteries are safer (they have a lower chance of a thermal runaway) and therefore result in lower frequency and severity of incidents caused by faulty or damaged batteries. However, currently the majority of experience with EVs in the UK is based on the NMC batteries (used by majority of manufacturers) and will not accurately represent these lower risks. Will insurers price ahead for the provisioned improved safety or wait for the experience to develop and risk being behind?

Furthermore, as the second hand EV market grows it will be imperative for insurers to collect and analyse data surrounding battery age, health and condition to prevent major losses due to high severity claims.

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A solution some cautious underwriters may resort to, to prevent major losses, could be to exclude battery only related incidents from their policy cover. This will likely cause major uproar with manufacturers and the public, a gap will open for companies like BYD to expand further into the UK value chain. Similarly to Tesla, BYD may launch their own insurance product, or partner with the behemoth Chinese insurer Ping An (has plenty of experience with EVs) to move in on the UK insurance market.

Considering the combination of EVs and ICE vehicles in the UK Car Parc, some features used in risk modelling must be re-evaluated due to the stark differences seen for these vehicle types. For example, EVs have near-instant torque, and are all automatic by design. Due to many insurers currently rating on Engine Power (BHP or Engine CC) and Transmission as key features, adjustments to their rating engines will be required to consider the differences based on fuel type.

Support to bridge the gap between ICE cars and EVs can be provided by Pebbles `Engine_CC_PetroElectric' factor in our Vehicle File data product.

Key takeaways

Due to the ever-developing nature of EVs, the best future approach could be to create separate rating structures for EVs and ICE vehicles respectively. In the meantime, pricing teams will need to handle a mixed data population of EVs and ICE vehicles driving their pricing models and make allowances for the absence of Engine CC and Transmission data for EVs. Finally, a focus for insurers should be to capture data on the different battery types and risks associated for the key manufacturers in the EV market.

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