The Expert Podcast

As the auto market converts to electric vehicles, one of the things being noticed as a difference is the insurance claims process. If you have a traditional gasoline or diesel internal combustion engine vehicle, the engineering and design of that vehicle is such that if there's a collision, the engine and the powertrain are separate from the body and the frame.

With electric vehicles, the engineering integrates those two components more tightly so that the battery and the powertrain are more integral to the frame and the chassis. As a matter of fact, in some electric vehicles, the battery is actually part of the chassis—it’s in the floor pan of the vehicle. So, when you have an accident, it's more likely to damage not only the physical structure of the vehicle but also the powertrain. Because of this, insurance claims and damages on electric vehicles are significantly higher.

Here’s an article from the insurance industry that talks about how many large insurance companies handle accidents involving Teslas. If a Tesla is involved in a collision, they often write it off. They don’t try to fix it or salvage it; they simply issue a total loss claim. This approach may or may not be beneficial to the vehicle owner. In theory, you get a new vehicle, but there are downsides.

First, if you're buying a vehicle with a higher history of insurance claims, even if you don’t have a claim, your policy premium will be priced commensurate with the claims history and exposure. For instance, if a typical accident costs $4,000 to fix, your premium will reflect that amount. However, if your vehicle requires a total loss payout of $30,000, your premiums will reflect that higher cost.

In some cases, insurance companies have even refused to insure certain vehicles. For example, some Hyundai and Kia models have been dropped by insurers because of excessive theft claims. Excess claims can impact owners even if they have no personal claims history.

Another issue arises if your car is totaled. Most insurers provide actual cash value (ACV) or market value for the vehicle, not the cost of a brand-new car. For instance, if your Tesla is totaled and the ACV is $28,000 minus your deductible, you receive that amount. To replace the car, however, you’ll likely have to pay out of pocket for the difference.

If your car is repairable, you might avoid this situation. For example, if your vehicle sustains $3,000 worth of damage and can be repaired, you only pay the deductible, keeping your car on the road. But this isn’t often the case with electric vehicles, where even minor accidents can result in total loss claims.

Reuters conducted an analysis of crash-damaged low-mileage Teslas at salvage auctions like Copart and IAA. They found that most of these vehicles had fewer than 10,000 miles at the time of the collision. Despite being high-value cars, with retail prices between $60,000 and $80,000, these vehicles were totaled due to seemingly minimal damage.

In one instance, a front-end collision totaled a Tesla, while another involved damage to the body. Nearly all of these cars had fewer than 10,000 miles, underscoring the issue. Insurance companies are also concerned about long-term liability when repairing electric vehicles.

When repairs are made, there’s a risk that future mechanical problems could arise due to the initial damage. For instance, a bent frame, misalignment, or undetected battery issues could emerge later, prompting the owner to file a supplemental claim. This long-term exposure makes insurers cautious about repairing electric vehicles.

In response, many insurers are issuing Certificates of Destruction for totaled electric vehicles. These titles—sometimes labeled as "non-repairable," "junk," or "parts only"—prevent the vehicle from ever returning to the road. This designation lowers the auction value of the vehicle but eliminates the insurer's liability.

The rationale is that if a repaired vehicle causes injury or damage years later, the insurance company could be held liable. By issuing Certificates of Destruction, they ensure that these vehicles are permanently removed from the road, even if the damage seems minor.

Electric vehicle batteries are particularly vulnerable. Unlike internal combustion engines, which are designed to withstand vibrations and collisions, batteries are more delicate. A collision can cause internal damage, leading to issues like short circuits or fires, even if no visible damage is present.

This sensitivity extends to the motors that drive electric vehicles. Since electric vehicles often have motors on all four wheels, any collision that affects a corner of the car could damage one of these motors, increasing repair costs.

The traditional insurance model, developed over decades for internal combustion engine vehicles, is being upended by electric vehicles. Repair costs are higher, and the integrated design of electric vehicles makes them more susceptible to costly damage.

Even Tesla is exploring solutions to these challenges. The company has hinted at engineering changes to make repairs cheaper and has even launched its own insurance program. These efforts aim to address some of the unique insurance issues electric vehicles face.

What do you think about the insurance implications of electric vehicles? Drop your comments below!