EVs, in particular, Tesla, as the current (Q01Y23) market leader, are showing a higher total loss frequency. In other words, even minor damage has a greater chance of being “totaled” by the insurance provider, rather than just repaired.
More Total Losses?
A story in Car & Driver explains how Tesla vehicles are often deemed “total losses” for what we would consider repairable issues. While there is a degree of “Tesla clickbait” in the title and story, the article accurately explains the current situation. The “vast majority” of Model Y’s in salvage auction listings have fewer than 10,000 miles.
To be clear, that’s not typical in our experience.
One vehicle was deemed to have $50,000 of damage after a front-end collision. Despite having a purchase price over $60,000, the insurance company considered it a total loss. But there could be change on the horizon.
Tesla owners typically pay 30% more for insurance than the national average (though it is not clear if this accounts for the higher purchase price). The company understands this and launched their own insurance company for Tesla vehicles. They claim to use insights gained here to adjust production and repair guidelines. We will see if this has an impact on other company practices.
The Frost Analysis
The facts of the situation are that it is simply more expensive to insure a Tesla (or other EV), and owners are more likely to have total losses. We cannot speak to the degree of the impacts, or if the risk of collision is different in one of these vehicles. However, we can provide our perspective on the why of the higher “total loss” rates.
The short answer is that it is more profitable for insurers to settle based on a total loss, rather than paying to have the vehicle repaired. Then, they can sell the vehicle for its salvage value. Parts and batteries on EVs can tip the decision; the latter can garner between $15 and $42 per kilowatt hour (kWh). Total power storage tends to range from 60 to 100 kWh.
Some quick math tells us this alone isn’t enough for insurance companies to change their loss strategy, however, parts also come at a premium (as any EV owner knows).
Time will tell how this scenario evolves as EVs continue to grow in popularity. For now, we recommend that bank and credit union lenders keep a close eye on how these vehicles hold their values. Things can change fast, and with insurance companies shifting the norms, it’s essential to stay focused!
This is also a perfect opportunity to ensure your staff is fully versed in your GAP offering. Is it serving your members…and institution?
GAP coverage is especially important to protect EV borrowers against shortfalls after an insurance company settlement. We keep a close eye on industry trends, including this one, to build the best product and share the most valuable guidance for partners.
With decades of experience providing GAP to hundreds of financial institutions, we have a unique perspective for yours. Get an unbiased and complimentary analysis to ensure it is ready to protect through any change the industry throws at us!