Electric cars come with new risks for manufacturers, insurers

The future of mobility is clearly electric, but the transition will lead to a fundamental change in risk for manufacturers, suppliers and insurers alike and will have a significant impact on automotive product liability insurance, according to a new report from insurer Allianz Global Corporate & Specialty (AGCS).

Around the globe, 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.  However, with this growth, there are new risk challenges to manage: potential defect and performance issues; more complex and costly repairs; new fire and cyber threats; and even sustainable sourcing and disposal of critical components and raw materials.

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.

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. 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.

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