Acko General Insurance has recently launched an ‘extended battery warranty’ plan for the owners of electric vehicles (EVs). According to the insurer, this is a first-of-its kind policy that safeguards battery life for up to 4-5 years and provides performance coverage for up to 60,000 km.
The new policy by Acko General Insurance could now open the segment for other insurers as well, making it more beneficial for the buyer as well as the industry.
At present, traditional motor insurance policies meant for internal combustion engines (ICEs) i.e., petrol and diesel and petrol/gas hybrid are being issued for electric cars and scooters mostly.
Broadly, two types of policies are being used. The first is the traditional comprehensive insurance policies that include own-damage (also known as accidental damage) and third-party insurance. Second is the asset insurance policies for low-capacity EVs that don’t fall under the motor insurance category. These cover accidental damage but are not mandatory.
However, they fall short on a few parameters. There is no specific cover for damage to or by battery or charging point. There is no cover if only the battery is stolen. Insurance can be claimed only if the entire vehicle is damaged. Full-fledged policies are not available. Lastly, cover is available through add-ons at present.
It remains to be seen how useful would this new policy be, but let’s examine why EV-Specific Policies are the need of the hour.
The policy assumes significance as batteries constitute the major component of an EV.
Electric vehicles are different from internal combustion engine (ICE) vehicles – petrol, diesel, CNG and LPG. In ICEs, a mix of fuel and air under a controlled explosion in the engine chamber generates energy which is then transferred to the wheels through a series of gears and axles to set the vehicle in motion.
EVs use electric motors for propulsion. This is a very new concept in the passenger vehicle segment.
Even as the absence of ICEs make EVs cleaner and greener in the sense that there is no tail-pipe emission in the form of noxious fumes, they cost more than their petrol and diesel cousins, and a major reason for that is the battery cost.
Batteries constitute the major difference in cost between EVs and their petrol and diesel cousins.
For instance, Tata Motors, which has been the pioneer in the passenger EV segment, sells the cheapest version of the Tata Nexon XE (petrol), diesel (XM) and Prime (EV) for Rs7.79 lakh, Rs 9.99
lakh and Rs 14.49 lakh (all ex-showroom Delhi). The Tata Nexon – a subcompact crossover SUV – is available in all three petrol, diesel and EV versions.
Incidentally, batteries not only make the initial cost of acquisition high, but also make them expensive to run over the long term because of the battery replacement cost after every four years or so.
Though it is claimed that batteries usually last for eight years, but for all practical purposes, the battery lasts for about four years. So, once you factor in the battery replacement cost, which is to be done every 3-4 years, the overall cost of running the car will go up significantly.
For a 1,000 km ride a month, EVs actually lose out to both petrol and diesel not just after the first year but even after 10 years, on overall cost, which would include the upfront cost, the charging/fuel cost as well as the battery replacement cost
Another factor is the safety issue. Though this may not hold true for cars, given the stringent safety regulations in place, the few instances of electric scooters catching fire and bursting into flames has added to buyer anxiety.
The benefits of the FAME (Faster Adoption and Strong Manufacturing (Strong) Hybrid and Electric Vehicles) India Scheme created a big demand for electric two-wheelers, which attracted many new companies, which in turn, led to compromises on quality with no R&D or product development experience, and consequently to incidents of fire.
The Way Forward
In this context, the specific EV policy would go a long way in filling a gap in the EV ecosystem, say analysts and manufacturers in the EV segment.
Says Suraj Ghosh, director, mobility, S&P Global: “In the EV ecosystem, financing and insurance are still areas that need catching up. So, this move by Acko General Insurance is a great way to augment the ecosystem and at the same time, create opportunities for itself.”
For the customers, Ghosh says, “the benefit will be that they will not be dependent on partner services of EV makers or dealerships, and will instead benefit from the availability of more options and better pricing.”
Varun Goenka, CEO and founder, Chargeup, which provides battery swapping facility, says the new policy by Acko General Insurance for EV batteries is a positive step that will support e-mobility and will immensely benefit buyers, too.
“The insurance policy addresses a key roadblock to the faster adoption of EVs by underwriting the technology, specifically for batteries. The policy will give EV owners peace of mind about the high costs of battery replacement and may encourage more people to adopt EVs,” he says.
Tushar Choudhary, founder and CEO, Motovolt Mobility, which manufactures EV two-wheelers and cycles says: “This is a welcome initiative to build customer trust in EVs. Along with the extended warranty by OEMs, this will go a long way in increasing adoption.”
He adds that only OEMs which have launched with proper product validation should qualify for such schemes.
However, the policy is the first-of-its-kind and more innovations would be expected to make insurance more affordable and useful in this space.