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.
Sovereign Trust Insurance Pays Claims From EndSARS Protests, Others Totalling N2.9B
Sovereign Trust Insurance Plc paid claims totaling N2, 900,626,054.21 to various insured spread across the country in 2020, in keeping faith with its promise to pay all genuine claims as and when due.
The company’s Spokesperson, Mr. Segun Bankole pointed out that the underwriting firm is committed to claims settlement as and when due beyond lips service. He stated that the claims experience in 2020 was quite interesting in the sense that the company had to settle some claims that emanated as a result of the civil commotion in the country occasioned by the EndSARS protests in major parts of the country.
He further said that a very significant number of customers have really come to appreciate the role of insurance in their everyday life and that accounted for the sum paid as claims in 2020.
The summary of the claims paid in 2020 shows that Motor had the highest figure of N948 million with energy Insurance ranking second with total claims settled to the tune of N802.3 million. Fire Insurance claims amounted to N562.8 million, while Marine & Aviation claims stood at N284.6 million. The total sum of N236.6 million was paid as claims on General Accident Policy, with Engineering insurance accounting for N66.4 million.
While commenting on the intent of the organisation as regards claims settlement, the Executive Director, Technical Operations, Mr. Jude Modilim had this to say, “there is no compromise to genuine claims settlement in Sovereign Trust Insurance Plc because the major focus of the company is to ensure that our teeming customers get to enjoy the benefits of taking out any form of insurance policy with us through prompt settlement of their claims when the need arises. That to us, is the only way to prove that we are well and alive to our responsibilities as an Underwriting Firm in the country. We intend to uphold this obligation and we will always continually strive to make good our promise.
In the same vein, the Managing Director/CEO of the organisation, Mr. Olaotan Soyinka also stated that the company has put in place a friendly-claim-process with the major aim of putting smiles on the faces of its various customers across the country by ensuring that claims are settled within the shortest period possible on completion of all necessary documentation.
Our commitment to uphold the tenets of our Vision and Mission has made the company one of the country’s most relevant and responsive insurance companies in the country. Sovereign Trust Insurance Plc is no doubt a formidable force to reckon with in the Nigerian Insurance landscape with a network of offices in all the major cities of the country buoyed by cutting-edge technology in delivering seamless and convenient insurance service to all teeming customers in the country and beyond.
$268b Losses From Natural Disasters Recorded In 2020, With 64% Uninsured
Aon plc has launched its global Weather, Climate & Catastrophe Insight: 2020 Annual Report. The report evaluates the impact of global natural disaster events to identify trends, manage volatility and enhance resilience.
The report reveals that the 416 natural catastrophe events of 2020 resulted in economic losses of USD268 billion – 8% above the average annual losses for this century – as costs continue to rise due to a changing climate, more people moving into hazard-prone areas and an increase in global wealth. Of this total, private sector and government-sponsored insurance programmrs covered USD97 billion, creating a protection gap of 64%, which is the portion of economic losses not covered by insurance. This highlights the importance of addressing the underserved by ensuring that there is increased access to affordable insurance products in the future.
“The global response to the socioeconomic volatility caused by the COVID-19 pandemic has increased focus on other systemic risks – particularly climate change – and is causing a fundamental reordering of business priorities. This report highlights the increasing likelihood of ‘connected extremes’ and reinforces that leading organisations of the future will be defined by their ability to manage the global implications of concurrent catastrophic events,” said Greg Case, CEO of Aon. “In a highly volatile world, risk remains ever present, is more connected and, as a result, is also more severe – and 2020 has underscored this reality. It has also emphasized the need for enhanced collaboration between the public and private sectors, which will be essential to close the rising protection gap and build resilience against natural catastrophes.”
During the year, more than 8,000 people lost their lives due to natural catastrophes. Tropical cyclone was the costliest peril, causing more than USD78 billion in direct economic damage. It was closely followed by flooding (USD76 billion) and severe convective storm (USD63 billion). From a climate perspective, NOAA cited 2020 as the world’s second-warmest since 1880 for land and ocean temperatures at +0.98°C (+1.76°F) above the 20th-century average.
Steve Bowen, Director and Meteorologist for Aon’s Impact Forecasting team, commented: “The world continues to evolve as it is faced with new challenges around natural perils. While many private and public sector entities primarily focus on physical and human hazard risks, an increasing number of global regulative bodies are further pivoting towards how to handle emerging transitional and subsequent reputational risks. This is especially true as the financial and humanitarian risks surrounding climate-enhanced events become more evident on a daily basis. Focus at the corporate and federal levels will be critical around investments in risk mitigation, resilience, and sustainability as the landscape around climate change solutions continues to accelerate with renewed urgency.
Significant regional events during 2020 included:
- Costliest year on record for global severe convective storms led by historic U.S. derecho
- U.S. mainland endured a record-breaking 12 named storm landfalls, including six hurricanes
- Super Typhoon Goni struck the Philippinesas the strongest landfalling storm ever recorded globally at 195 mph
- Ciara became Europe’s costliest windstorm since Xynthia in 2010
- Drought conditions reduced agricultural crop yields in Brazil and Argentina, burning 30% of the Pantanal Region
The most widespread Yangtze River Basin floods since 1998 caused USD35 billion of economic damage in China’s monsoon season.
Sovereign Trust Insurance Maintains A- Rating With GCR
For over a decade now, Sovereign Trust Insurance Plc has consistently maintained A- rating with the international rating agency, Global Credit Rating, GCR based in South Africa. Global Credit Rating’s recent solvency and operational report for financial institutions in Nigeria and other allied businesses released in December 2020, indicated that Sovereign Trust Insurance Plc maintained A- rating with the international rating agency, GCR based in South Africa.
Sovereign Trust has consistently maintained the A- rating for more than a decade now.
The rating agency affirmed that the insurance company has great potentials for growth in the years ahead, considering some of the strategies that have been put in place to propel its operations.
GCR noted that the company has shown a great deal of consistency in her claims paying obligations to her numerous customers spread all over the country.
The Report further stated that the listing of the Rights Issue in 2019 helped in increasing the Shareholders’ funds of the company by 33.8% to N7.8b by the end of the Financial year in 2019 as against the figure of N5.8b in 2018.
Consequently, by the Third quarter of 2020, the Shareholders’ funds had increased to N8.2b which also translated to a 31% increase in the same corresponding period of 2019 with a figure of N6.3b.
In the rating agency’s opinion, Sovereign Trust Insurance Plc is strong in liquidity with more than adequate claims coverage that compares well to industry averages.
The capital adequacy of the Underwriting Firm is considered strong according to the rating report and this is underpinned by the sizeable capital base catering for the quantum of insurance and market risks assumed.
In this regard, the ratio of Shareholders’ funds to NEP, (Net Earned Premium) improved to 189.2% in the Q3 of 2020 as against 130.9% in the corresponding quarter of 2019.
In terms of peer-to-peer performance comparison, Sovereign Trust Insurance Plc did very well when compared with other selected insurers in terms of Capital, Total Assets, Gross Premium Income (GPI) and Net Premium Income (NPI).
The company has creatively been able to develop a good mix of its clientele base with personal lines contributing 42% of its Gross Premium Income during the rating period. The introduction of the Enhanced Third-Party Motor Insurance Cover with the acronym E3P in 2019 complemented the efforts of Management at driving retail business initiatives in the industry. Other new retail products are already in the pipeline and will soon be introduced to the market in a not-too-long distant time.
The report also stated that as a result of STI’s increased underwriting capacity and geographical diversification, the organization has developed a sound business profile supported by a moderately strong competitive position and improved brand acceptance hinged on continuous marketing drive and a well-established Brokers’ relationship of diverse business mix.
As observed by the Rating Agency, insurance penetration remains very low in the country at an estimated ratio of 0.5% for general insurance businesses.
Sovereign Trust Insurance Plc has over the years demonstrated commitment to optimally maintaining a leading position in the insurance industry in Nigeria.