Electrification 2035: Auto Insurance Rates to Increase as the Transition to Electric Vehicles Becomes Law in Canada

Morningstar DBRS released a commentary titled “Electrification 2035: Auto Insurance Rates to Increase as the Transition to Electric Vehicles Becomes Law in Canada,” which discusses the effects that the Electric Vehicle (EV) Availability Standard announced by Canada could have on automobile insurance premium rates as the transition to 100% zero-emission vehicle sales targets gains momentum.

The commentary highlights the following key points:

-- As Canada's automobile landscape transitions, EV buyers should expect to pay more for insurance when replacing internal combustion engine (ICE) vehicles with EVs. Insurers will also have to adjust their pricing models as more EV claims data are generated.

-- EV owners in the UK already face higher premium rates and, in some instances, denial of coverage as insurers adjust their pricing models. This trend could manifest in Canada over time.

-- Repairs and replacement parts for EVs are very expensive, prompting some insurers to total damaged vehicles instead of attempting to repair them.

-- Auto insurance rates are highly regulated in Canada, which may help mitigate the pace of potential rate increases.

“For EV drivers in Canada, a silver lining might be found in the highly regulated Canadian automobile insurance industry. Provincial governments are responsible for the regulation of auto insurance policies, including the monitoring of claims handling and dispute resolution. Provincial regulators also review and approve requests made by insurers to increase rates before they can be implemented,” said Victor Adesanya, Vice President, Insurance. “This could help mitigate the impact of insurance rate increases on the finances of EV owners on renewal or when an EV is registered for the first time. However, we expect that auto insurance rates will trend upward over time as insurers generate more claims data for EVs and reflect that experience in their pricing. We do not expect this to affect insurers’ profitability or credit ratings in the near to medium term because Canadians insurers are well capitalized and are relatively able to adjust pricing to preserve profitability.”