China’s fast-growing electric vehicle (EV) market is proving costly for auto insurers, with underwriting losses piling up as traditional risk models fail to keep pace with changes in vehicle economics and driver behaviour.
The country now has tens of millions of EVs on its roads, and sales continue to rise rapidly. But insurers report that new energy vehicle (NEV) owners, generally younger than gasoline car owners, are nearly twice as likely to file claims, with repair costs significantly higher. Despite EV premiums running 20%to double those of conventional cars, insurers have been losing money on the segment for at least three years. Industry data show underwriting losses of 5.7 billion yuan ($802 million) in 2024, with another deficit expected this year.
The challenges echo problems emerging in other markets, highlighting the difficulty of pricing risk accurately for EVs. Qin Lu, CEO of Greater China at Aon Plc, said insurers have yet to fully differentiate between brands, models, and loss patterns. “It’s a very challenging area,” he noted, predicting that many insurers may not break even for at least another three years.
EV-specific risks complicate coverage. Electric cars accelerate faster than gasoline vehicles, and their floor-mounted batteries are vulnerable to damage from bumps or crashes. Batteries, which can account for up to a third of a car’s value, require costly repairs using specialized parts. Insurers also face difficulty detecting ride-hailing drivers who misclassify their vehicles to pay lower premiums.
The mounting costs have hit consumers. Nicole Wu, a Tesla Model 3 owner in Hangzhou, said her annual premium surged fourfold to almost 30,000 yuan after multiple accidents, prompting her to switch to a Nio car with cheaper coverage. On average, EV insurance premiums in China are about 4,487 yuan annually, a fraction of U.S. levels but still rising.
Regulators and insurers are searching for solutions. Authorities launched the ‘Easy to Insure’ platform in January, helping connect over 500,000 EV owners with coverage worth nearly 495 billion yuan. Insurers, however, remain restricted in how far they can adjust premiums, as the state sets base rates.
Chinese regulators have also urged companies to reduce replacement part costs, improve repair standards, and share data across industries. With over 60 auto insurers competing, the top three firms hold around two-thirds of the market, while automakers from Tesla to BYD are also moving into insurance services.
Some progress has been made. Ping An Property & Casualty reported underwriting profits on EV coverage in 2024, aided by technology to distinguish ride-hailing drivers and by research into repair economics. Rivals PICC and China Pacific Insurance continue to record losses, particularly in commercial EV insurance.
Analysts expect the EV insurance market to expand significantly, with annual premiums projected to reach 500 billion yuan by 2030, more than a third of China’s auto insurance sector. S&P Global Ratings analyst Wenwen Chen described pricing as still being in a ‘trial-and-error phase,’ but noted it will become a crucial growth engine.
“Profit is important, but insurance companies also have social responsibilities to fulfill,” said Paul Low, CEO at the Asian Institute of Insurance. “China’s national agenda is to push for EVs, and affordability is important.”
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