The global insurance industry should anticipate the rapid technological and financial changes brought on by automobile electrification.
This is according to Pratik Raval, partner and head of sustainable business strategy and transformation practice at Mumbai-based Tata Consultancy Services (TCS).
TCS is the second largest company in India by market capitalization and eighth in revenue. It has offices around the world, including Toronto, Montreal, Vancouver, Regina and Calgary, employing over 5,500 in Canada.
“EVs (electric vehicles), you can think of it as kind of gen two of automobile evolution and EVs are also becoming synonymous with smart vehicles, with integrated smart technology, as well as some other aspects,” Raval said.
“So I think purely from business speak, we anticipate revenue from EV insurance to grow. However, overall, auto insurance revenue may stagnate or even reduce.”
This is in part due to lower repair and replacement costs and smart vehicle technologies being integrated into EVs.
Prior to joining TCS, Raval was a global director of ESG and operations at American Express. He was recognized as one of the top 25 sustainability leaders in 2022 by The Consulting Report and top 20 global thought leaders in sustainability by CEO Magazine in March of this year.
Raval is also an ex-adjunct professor at Massachusetts Institute of Technology where he taught graduate programs in sustainability.
EVs and insurance
Automotive insurance accounted for roughly 39 per cent of the total $77 billion property and casualty insurance premiums written in 2021.
Raval explained that insurers will need to look at creating new products specific to EVs, instead of simply gathering data based on internal combustion vehicles.
That means taking a look at the evolving technologies of the EV revolution – everything from the batteries to the charging infrastructure. The driver's profile, with a focus on charging location and frequency, as well as demands on the grid, will need to be considered by insurers. In fact, insurers could become an intermediary for utilities looking to simulate grid impact.
He mentioned providing data on something like this could be an business opportunity for insurers.
“Insurers should also look at how can they leverage this smart technology that comes along with EVs to create or orchestrate a larger ecosystem of business connectivity and new products and services to compensate or generate even more revenue that may . . . reduce, if they just played in the traditional sense of auto insurance, premium business,” he said.
Overall, he's not worried about the industry's transition into electrification, saying the main drivers are the same everywhere in the world.
"What will drive different rates of adaptation whether it's Canada, U.S. (or) Europe, is going to be the combination of policy, consumer expectation and market adaptation," he said.
Challenges for the insurance industry
Raval sees the biggest challenge for the industry as a whole as essentially, its ability to keep up with electrification. If there’s a new battery that is more energy-efficient or an EV’s sensors in the latest model are further integrated into the vehicle – all of this would need to be considered by insurers.
“What matters is that the data that you collect, the underlying data that you collect, may still remain the same, the frequency (and) the accuracy of all that may change,” Raval said.
Regarding the speed with which these technologies develop, particularly as countries are aiming for 2030, 2040 and 2050 net-zero goals, Raval also discussed how insurers could assist with the necessary innovation.
“There are innovations and trends that we see that can help improve (and) answer questions around the energy density, the charging frequency, the aspects of materials, electrolytes, all of that will evolve,” he explained.
“I think I would say that continued innovation is going to enable this EV evolution. And I think the role the insurers can play is that beyond just EV insurance. I see there are examples, specifically in Europe, where insurers and reinsurers are also finding opportunities in ensuring new business ventures, new experiments. And that is an example of being an orchestrator or supporter of the larger ecosystem.”