As the take-up of electric cars is expected to accelerate rapidly in future, driven by consumer demand and government policies aimed at tackling climate change, a new report from insurer Allianz Global Corporate & Specialty (AGCS) stated that the transition will lead to a fundamental change in risk for manufacturers, suppliers and insurers alike.
The development is also expected to have a significant impact on automotive product liability insurance.
“From supply chain networks to production processes to the product itself – the automotive industry will have to respond to many emerging risks to make the transition to electric vehicles happen,” says Daphne Ricken, Senior Underwriter Liability at AGCS. “The anticipated growth of electric cars brings the prospect of new defect or performance issues; more expensive repair costs; new fire and cyber threats; and even reputational issues around sustainable sourcing and disposal of critical components and raw materials for batteries.”
A new AGCS publication, The Electric Vehicles R-EV-olution: Future Risk And Insurance Implications[DG(1], highlights that the use of electric cars is expected to soar in future as their cost gradually declines, the choice of available new models likely doubles within five years, their driving range increases and consumers, as well as governments, demand greener low-emission vehicles. The International Energy Agency has predicted there could be more than 100 million electric cars on the roads in 2030 – up from around seven million today – with annual sales in the region of 20 million, driven by growth in China[DG(2] – already the world’s largest market – the European Union (second largest), Japan, Canada, the US and India, in particular.
New risk exposures
While the coronavirus crisis may dampen the outlook for global electric car sales for 2020 and beyond, the anticipated long-term growth also brings a range of technical and operational risks, both from a product liability perspective and in other areas:
Safety and reliability: Tests conducted by the Allianz Center for Technology Automotive (AZT Automotive) have shown that the high voltage components of electric cars are well-protected and will not be affected in most crashes. Statistical evaluation of Allianz claims also shows that electric vehicles are less likely to be involved in accidents today – they typically drive short distances with limited mileage overall. However, any damage sustained can be, on average, more expensive than for conventional cars.
“If the battery in an electric car has to be replaced, it can result in a total loss in many cases. In addition, the fact that they can only go to specialist repair shops can contribute to costs,” says Carsten Reinkemeyer, Head Of Vehicle Technology And Safety Research at AZT Automotive.
Battery life and performance are critical issues for electric cars. Given the high cost of replacement or repair of battery units, a failure to live up to performance guarantees will pose questions around liability for manufacturers and suppliers.
Fire threat: As with conventional vehicles, defective electrical components and short circuits can spark a fire, while lithium-ion batteries may combust when damaged, overcharged or subjected to high temperatures. High voltage battery fires can be very intense and difficult to extinguish, and can also release high levels of toxic gases – such fires can take 24 hours or longer to control and be made safe. Due to the relative rarity of such fires to date, response and rescue services have limited experience of dealing with such incidents.
Environmental issues: Despite their green credentials, environmental issues can represent a potential liability and reputational risk for vehicle manufacturers and suppliers. A rapid uptake in electric cars will require manufacturers to source sustainable supplies of critical components and raw materials as they ramp up production. For example, battery technology will drive a huge increase in demand for cobalt and lithium, outstripping current supply – lithium supply has been predicted to triple by 2025. Effective recycling and reuse of materials will therefore be essential. Environmental and social concerns will also put emphasis on the sustainable sourcing of minerals, as well as traceability and transparency of supply chains. High voltage batteries could also pose a pollution risk, if not properly disposed of.
Speed to market and potential defects and recalls: Manufacturers are under pressure to accelerate the transition to electric mobility. The combination of new technology, short development cycles and new 3D/4D printing in production could result in an increase in defects and quality issues, triggering product recalls for the automotive industry – which are already among the largest and most complex of any sector, according to AGCS claims analysis.
Cyber concerns: Electric cars are likely to have increased connectivity and reliance on data, sensors and software, including artificial intelligence, to manage vehicle systems and aid driving. As with conventional vehicles, increased connectivity is likely to give rise to cyber vulnerabilities, including the threat of malicious attacks, system outages, bugs and glitches. There have already been product recalls in the automotive sector as a result of cyber security.
Insurance implications and claims complexity
Electric mobility will have many implications for insurance – in particular automotive product liability insurance – and claims, as technology creates new risks and exposures, and as liability shifts within the supply chain.
“Electric vehicles will consist of fewer but more integrated parts and components. What may have been three parts in a conventional car could be only one part in an electric car. 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,” Ricken explains. “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.”
Fire and explosion risks associated with high voltage batteries could give rise to claims for commercial property insurers, in particular if multiple cars are charged in underground car parks. Claim scenarios are manifold – ranging from overheated battery leads resulting in fires and property damage to breakdown, leading to fire, as a result of electronic failure of the battery management system.
Insurers may also expect to see a potential increase in product recall/liability claims from new technologies, components, faster development times and shorter testing periods. Last, but not least, there will be employers’ liability exposures – such as potential toxic fumes and fire risks during 3D printing or the handling of lithium batteries related to fire and contamination.
EndSARS: Insurers Pay N4bn Claims, To Pay More
By Sola Alabadan
The dust generated by the EndSARS protest in October 2020 is yet to settle, as insurance companies in the country have already paid N4 billion as claims to over 2000 policyholders that were affected during the protest and more claims will still be paid.
The chairman of Nigerian Insurers Association (NIA), Mr. Ganiyu Musa, made this known at an interactive session with journalists on Thursday in Lagos.
He also informed that the insurance operators are still collating claims which arose from the incident, assuring that all genuine claims will be paid as promptly as possible.
Musa said: “the number of insured businesses that were affected at the last count was about 2000 insured losses and the industry have settled over N4 billion claims in respect of the EndSARS protest. Once they are documented and completed, we have the commitment of our members that claims will be paid timely.
The association is on top of developments on the aftermath of the protests and will continue to encourage members to pay all genuine claims in line with the extant policies.”
On the Consolidated Insurance Bill 2020, he said: “NIA welcomes the review as it will align the Act with global best practice and promote the business of insurance in the country.”
According to him, the current insurance legislation is outdated and has made it impossible to do things that need to be done.
On the African Insurance Organisation Conference, AIO 2021, Musa said: “Originally planned for year 2020, COVID-19 was a force majeure due to health protocols and travel restrictions. With availability of vaccines, reduction in infection rate, coupled with relaxation of travel restrictions and other protocols around the coronavirus disease, the AIO Executive Committee and the NIA have agreed to hold it from September 4 – 8, 2021. A hybrid conference has been agreed and we solicit your support in hosting the best conference ever.”
Speaking on the Nigerian Insurance Industry Database /Nigerian Insurance Industry Portal (NIID/NIIP), the NIA boss stated that: “The Nigerian Insurance Industry Database was established to reduce soft market practices and eliminate fake insurance policies. The Association has taken a step further by creating the Nigerian Insurance Industry platform to enable vehicle owners purchase their third-party motor vehicle insurance cover from the comfort of their homes and telephones. So far, we are seeing a lot of traction on the platform across the states of the Federation and we are hopeful that other states will key into the project before the end of the year.”
On the Marine Module, he said: “As you are probably aware, the Central Bank of Nigeria has since integrated the NIA Marine Module into the National Trade portal and all insurance certificates required for import and export are generated from the portal. This, no doubt, signals the end of fake Marine Insurance Certificates at the Ports.”
Musa further disclosed that he became the Chairman of the Council of Bureaux of the Ecowas Brown Card Scheme at its 37th Ordinary Session in January this year. “A major issue for the Bureau is domestication of Compulsory Brown Card in the country. We are hopeful that when all the fine details have been sorted, it will be implemented in Nigeria,” he said.
On the new NIA House Project, he said; “Construction of a befitting Secretariat for the association has reached an advanced stage and we are hopeful that the building will be completed at the end of the second quarter so that we can take full possession of the property and relocate our secretariat staff before the end of the year. Of course, we have had some delay in meeting delivery timelines due mainly to the outbreak of COVID-19 and the regulatory restrictions on number of workers on site at any point in time.”
On the initiatives on compulsory insurance, he said: “We have commenced discussions with Lagos State Building Control Agency, as part of engagements on the implementation of Lagos State Building law. We are also working closely with the state vehicle Inspection service on enforcement of Third Party Motor Insurance in the state. We are also engaging Kaduna, Kogi and Ogun States, and remain hopeful that other states will see value in the platform and embrace it. Out of the estimated 13 million vehicles in Nigeria only about 2,939,767 Third Party Motor policies are in force as at Apr 26, 2021.”
Brokers Charge FG To Declare State Of Emergency On Insecurity
The Nigerian Council of Registered Insurance Brokers (NCRIB), has lamented the spate of killings, kidnapping and other forms of violent attacks in the country, saying the development is not only tarnishing the country’s image but also scaring investors away from the country.
The President of the Council, Dr. Bola Onigbogi who said this at media parley in Lagos, appealled to the federal government to, as a matter of urgency, declare a state of emergency on terrorism and killings, especially in the Northern part of Nigeria.
Onigbogi noted that if nothing is done as soon as possible to address this menace, it will deter foreign investors from investing in the Nigerian economy.
She said: “to say that the rate of killings and kidnapping in Nigeria is endemic is to state the obvious. The recent rate of attacks on people in most part of the nation is so disheartening.
“It is worrisome seeing how Nigerians are being massacred in their own fatherland unabated. It is difficult to read the mindset of these dare devil hoodlums, who have decided to unleash terror on unsuspecting and innocent Nigerians.
“Our heartfelt sympathy goes to the government and the people of affected States, especially, the immediate families of the victims. However, I like to join several other Nigerians to appeal to the Federal Government, as a matter of urgency, declare a state of emergency on terrorism and killings, especially in the Northern part of Nigeria.
“We appeal to Mr. President to instruct all the service chiefs to take responsibilities for the killings and kidnappings that has continued to tarnish the image of the country. It is important to note that with the spate of killings and kidnapping in Nigeria, if nothing is done as soon as possible, it will deter investors from investing in Nigeria economy”.
Onigbogi, who also spoke on building collapses in the country, called on the government to take decisive measures to address this issues.
“It is essential for government to facilitate meetings of all stakeholders in order to reach a compromise on methods to adopt in stemming the tide. Kindly permit me to state at this juncture that the enforcement of Section 64 and Section 65 of Insurance Act 2003 should be prioritized”, she expressed.