In China, many consumers are opting for new energy vehicles (NEVs) to save money, thanks to government incentives such as tax reductions and subsidies, as well as the lower operational costs of these vehicles.
However, NEV owners face a common challenge—rising insurance costs, with some even being denied coverage by insurance companies. According to Chinese media reports, the annual insurance cost for a 100,000 RMB (approx. 50,000 AED) electric vehicle can reach as high as 30,000 RMB (approx. 15,000 AED).
While this steep premium may be a tactic by insurers to indirectly refuse coverage, the reality is that NEV insurance costs are generally much higher than those for traditional gasoline vehicles. On average, NEV insurance is 63% more expensive than that of fuel-powered cars. Even after accounting for factors like vehicle age, the premium for a new NEV remains approximately 10% higher than that of a new gasoline vehicle. Reports indicate that for a 100,000 RMB NEV, the first-year insurance fee typically ranges from 4,000 to 7,000 RMB, with renewal premiums often being even higher.
Why are NEV insurance premiums so expensive in China? Which types of vehicles have the highest insurance costs? This article explores these issues in detail.
What Insurance Do NEV Owners Need?
NEV insurance in China consists of mandatory insurance (Compulsory Traffic Accident Liability Insurance) and commercial insurance. Commercial insurance is divided into three main types: Vehicle Damage Insurance, Third-Party Liability Insurance, and Passenger Liability Insurance, with 15 optional add-ons (six of which are unique to NEVs).
While mandatory insurance for NEVs is the same as for gasoline vehicles, commercial insurance is significantly more expensive. The previously mentioned 30,000 RMB annual premium includes high costs for Vehicle Damage Insurance and Third-Party Liability Insurance, as well as particularly high coverage for Passenger Liability Insurance (about 10,000 RMB) and nearly 7,000 RMB for Mental Damage Compensation Insurance.
It might seem that car owners could reduce their premiums by selecting fewer insurance options. However, insurance companies assign a risk score to each vehicle and driver. If a vehicle owner does not purchase the required coverage, their vehicle may be denied insurance. The primary reason behind the 30,000 RMB insurance premium in one case was that the vehicle had been involved in six claims within two years, resulting in a very low risk score and making it difficult to obtain coverage from most insurers.
Which NEV Insurance Is the Most Expensive?
The most expensive insurance applies to vehicles used for ride-hailing services, such as those in the shared economy.
These vehicles typically operate for long hours, accumulating hundreds of kilometers daily—often several times more than private cars. The longer they are on the road, the higher the probability of accidents. Additionally, the operating conditions are more complex, increasing the likelihood of traffic incidents.
When setting insurance prices, companies consider the vehicle’s usage, risk profile, and other factors. Since commercial vehicles have a higher accident risk and greater potential compensation costs, they are classified as high-risk, leading to significantly higher premiums.
Insurance Companies Losing Money Despite High Premiums
Authoritative data shows that in 2024, Chinese NEV insurance providers faced a loss of 5.7 billion RMB, covering 2,795 vehicle models. Among these, 137 models had claim rates exceeding 100%, meaning insurers were losing money on high-claim vehicles.
The high loss ratios for NEV insurance can be attributed to four main factors:
High repair costs: NEVs are technologically advanced and highly integrated, requiring parts to be replaced in sets when damaged. This increases repair costs, and as vehicles age, breakdowns become more frequent.
High accident rates: NEVs are often used for ride-hailing, leading to higher usage intensity. Additionally, NEV owners tend to be younger, with a higher proportion of drivers under 35, many of whom have less driving experience. NEVs also accelerate quickly and operate more quietly, increasing the likelihood of accidents that other road users may not notice in time.
Mismatched insurance pricing: Some NEVs are insured under personal vehicle policies, even though they are used commercially. Personal car insurance is typically half the price of commercial vehicle insurance, creating an imbalance in premium adequacy and leading to loss ratios exceeding 100% for these vehicles.
Inaccurate risk assessment: Since NEVs are relatively new, there is limited historical insurance data. As a result, base insurance rates may not accurately reflect actual risks. Insurers have limited flexibility in adjusting rates, meaning premiums may not fully align with the real risk levels of these vehicles.
“High accident and claim rates for NEVs could put insurers in a situation where more coverage results in greater losses,” said an industry insider. “Our 2024 data shows that the accident rate for NEVs is twice that of fuel-powered cars.”
Due to these pressures, insurance companies have been forced to raise NEV premiums and, in some cases, deny coverage altogether.
How to Solve the NEV Insurance Issue?
To address these challenges, the China Insurance Association and the Shanghai Insurance Exchange have launched a platform for NEV insurance, allowing high-risk vehicles to access insurance online and ensuring that insurers cannot refuse coverage.
Actuaries and China’s Insurance Regulatory Commission have stated that they will continue to monitor NEV insurance claim rates. If necessary, they will disclose information on vehicle models with claim rates exceeding 100%. This initiative aims to enhance transparency, improve NEV insurance services, and ensure more accurate risk assessments and fairer premium structures.
Senior Writer The quest for automotive knowledge began as soon as the earliest memories. Various sources information, even questionable ones, have been explored including video games, television, magazines, or even internet forums. Still stuck in that rabbit hole.
