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UAE: EV insurance premiums spike after April rains; some firms reluctant to give coverage

Data showed that the average premium for EVs has risen from Dh3,906 in May to Dh4,729 in July, reflecting an approximate 21 per cent increase

Insurance premiums for electric vehicles (EVs) have increased faster than petrol for UAE cars after the unprecedented rains in April, which were the heaviest in 75 years in the country’s history.

Data showed that EV premiums rose at double the pace of fuel-powered cars in the post-rain period due to costly repairs and total loss concerns.

Since the April 16 rains and subsequent floods in Dubai, insurance premiums for automobiles have seen a noticeable increase.

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According to data shared by Insurancemarket.ae, the average insurance rates for EVs previously were around 2 per cent to 2.5 per cent of the vehicle's value. Between May and July 2024, these rates have steadily increased to approximately 3.5 per cent to 4 per cent, depending on the make and model of the EV.

“This increase reflects the heightened risk perception among insurers due to the damage caused by floods, particularly the vulnerability of EV batteries to water damage, which can lead to costly repairs or total losses. Premiums for EVs have increased faster than those for petrol cars following the April 16 rains in Dubai,” said Avinash Babur, CEO of Insurancemarket.ae.

Data showed that the average premium for EVs has risen from Dh3,906 in May to Dh4,729 in July, reflecting an approximate 21 per cent increase. Comparatively, the overall average premium for petrol cars increased from Dh2,100 to Dh2,365 in the same period, an approximate 12.6 per cent increase in premiums.

Some insurers reluctant to insure EVs

As thousands of vehicles were submerged in floods after the rains on April 16, many insurers opted for total loss as maintenance costs of EVs and sports cars were higher than their insured costs.

Therefore, some insurers in the UAE have become cautious and are reluctant to insure electric vehicles (EVs) after the rains due to high costs, complexity of repairs and increased risk of total loss.

“Yes, some insurance firms are becoming more cautious or even reluctant to insure electric vehicles (EVs), particularly following incidents like the April 2024 floods in Dubai,” said Avinash Babur.

Gautam Datta, CEO of Watania International Holding (WIH), said some insurers are reluctant to insure EVs – just like what happens when new items come into the market and people become wary about them. “They’re not sure of the loss implication and they find it difficult to price it.”

“Insurance is an arrangement where you collect a pool of premiums from which you distribute the losses. EVs being a very special kind of vehicle, initially, the motor and insurance industry looked at EVs as a separate pool. But gradually they’re looking at it as part of the bigger motor pool. Therefore, the industry will be able to distribute the loss impact over a bigger pool and come out with a more rational price,” he said.

Datta elaborated that some smaller players with a small motor portfolio could be reluctant to insure EVs because just insuring a few cars may skew their portfolio profile.

Avinash Babur said several factors contribute to this hesitancy.

“EVs are typically more expensive to repair than traditional cars due to their sophisticated electronics and battery systems. For example, flood damage to an EV's battery can result in a total loss because replacing the battery is often prohibitively expensive. EVs require specialised skills and equipment for repairs, which can limit the number of workshops capable of handling these vehicles. This can lead to longer repair times and higher costs, making them less attractive to insure," Babur told Khaleej Times in an interview.

"In cases of severe flooding, EVs are more likely to be declared total losses because water damage to the battery and electronic systems is often irreparable. This increased likelihood of a total loss claim can make insurers more reluctant to cover these vehicles. As a result of these concerns, while some insurers continue to offer coverage for EVs, others are becoming more selective,” he added.

Avinash Babur added that EV’s battery hight cost is a major cause of concern among insurers as it accounts for nearly half of the vehicle's price. This concern arises primarily because of the high replacement costs and limited repair options.

“The combination of high battery costs, the risk of total loss, and the challenges associated with repair and replacement has made EV insurance a more complex and expensive proposition for insurers,” added Babur.

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