Electric vehicle insurance has emerged as a crucial factor that could shape the future of Thailand's burgeoning EV industry.
Although a recent report suggesting two insurance companies have ceased insuring electric cars remains unconfirmed, it has prompted insurers, automakers and bankers to seriously consider insurance and various issues that could impact EV sales.
Assessing the growth of the EV industry solely by investment value is insufficient for Thailand, as it vies with neighbouring countries to establish itself as a regional EV production hub.
INSURANCE RELUCTANCE
There is growing reluctancy among insurers to offer EV insurance because the fluctuating market prices of new and used EVs make it difficult for companies to set insurance premiums.
The Thai unit of Japan's Tokio Marine Insurance last Tuesday announced changes to its EV insurance policy, revising the premium calculation method effective July 1. The insurer denied a news report earlier in the day that it stopping insuring EVs.
Customers renewing their policies will continue to receive standard coverage, with premiums calculated based on their claim history. However, for new customers or those transferring their policies, the existing fixed-rate premium will be temporarily suspended, the company said in a statement.
Customers participating in programmes with car manufacturers and dealers will still receive insurance coverage. They can inquire about the premium rates from company representatives, who will assess the insurance value and offer rates on a case-by-case basis, said Tokio Marine Thailand.
The Thai General Insurance Association warned that competitive pricing and rapid depreciation of EVs could affect the insurance value, noting claim rates have soared to 90-100%, affecting insurers' profits.
In addition, EV repair and spare parts costs are 50-60% higher than those of internal combustion engine (ICE) cars.
According to the Office of the Insurance Commission, 23 insurance firms still provide EV insurance.
"Insuring EVs does present unique challenges for non-life insurance companies," Lars Heibutzki, president and chief executive of Allianz Ayudhya General Insurance, told the Bangkok Post.
However, all types of insurance products have risks, meaning it's crucial when a company designs and develops products, it takes all risk factors into consideration and addresses the right go-to-market strategy and pricing, he said.
According to Mr Heibutzki, there are several key factors insurers take into account. First, the battery is a critical component for an EV with high replacement costs and potential fire hazards. EVs also require specialised parts and technicians, which can lead to higher repair costs.
"The fast pace of technological change can make parts obsolete quickly, affecting long-term insurability. However, the rapid growth of technological advancement also has led to a decrease in car prices because battery prices have significantly dropped," he said.
As batteries account for roughly 70% of an EV's price, a reduction in battery prices results in lower car prices.
"This is evident from recent price cuts by some manufacturers," said Mr Heibutzki.
The increased connectivity in EVs also raises cybersecurity risks, while the evolving EV market and entry of new companies to the Thai market adds complexity to risk assessment, he said.
Regarding environmental issues, Mr Heibutzki said there are challenges associated with the disposal and recycling of EV batteries. In addition, drivers typically need time to adjust to driving EVs and an increase in claims frequency is common for new EV owners compared with drivers of ICE cars, he said.
"Allianz has extensive experience in insuring EVs globally. Our employees are highly skilled and specialised in EV insurance, ensuring that we manage these risks effectively," said Mr Heibutzki.
GROWTH POTENTIAL
Despite these concerns, he said Allianz Ayudhya has noticed significant growth in EV insurance in the Thai market.
In addition to various government incentives and policies to make EVs more attractive to consumers, there is a growing awareness and concern about environmental issues among Thai consumers, said Mr Heibutzki.
"Many are opting for EVs as a more sustainable and eco-friendly alternative to traditional ICE vehicles. Advances in EV technology, including improvements in battery life, range and charging speed, have made the vehicles more practical and convenient for everyday use," he said.
Over time, the total cost of EV ownership has become more competitive with traditional vehicles, given the lower operating and maintenance costs associated with EVs.
The entry of many new players into the Thai EV market increased competition and innovation, making EVs more accessible and appealing to a broader customer base, said Mr Heibutzki.
Allianz Ayudhya has established strong partnerships with leading EV manufacturers and dealers in Thailand. These collaborations help the company provide tailored insurance solutions that meet the specific needs of EV owners, such as extended warranty insurance, he said.
"We continuously add new insurance products to address the unique needs of EV owners, including specialised coverage for charging equipment," said Mr Heibutzki.
The establishment of EV production plants in Thailand by various manufacturers has increased local production and the availability of EVs.
"This development not only supports the local economy, but also reduces costs and improves the supply chain efficiency for EVs in the country," he said.
"These factors collectively contribute to the growing demand for EV insurance in Thailand."
SALES DROP
Domestic sales of EVs, especially in the battery EV (BEV) category, are expected to dip this year because of the insurance concern, banks imposing stricter criteria for auto loans and a sharp decrease in EV prices, said the Electric Vehicle Association of Thailand (EVAT).
"Sales should be lower than in 2023, but they are still in a growth trend," said Krisda Utamote, president of the EVAT.
In 2023, BEV sales skyrocketed by 604% year-on-year to 73,568 units, according to the Automotive Industry Club of the Federation of Thai Industries (FTI).
Sales of hybrid EVs soared by 60% to 92,962 units, while sales of plug-in hybrid EVs decreased by 38% to 1,895 units.
For the BEV category, sales growth will not reach the level recorded last year, said Mr Krisda.
Though no insurers have publicly stated they will refrain from offering protection for EVs, these companies tend to set more complicated conditions for EV drivers who want to purchase policies, he said.
"Insurance companies and EV manufacturers must adjust to the increasing popularity of electric cars," said Chen Namchaisiri, former chairman of the FTI and a senator who sits on the Senate committee on commerce and industry.
The committee has frequently discussed the EV insurance issue, which led to a proposal for insurers to consider offering separate protection for batteries and electric motors, imposing higher premiums on these components, he said.
It is not necessary to calculate premiums based on the entire EV body, as companies do when insuring ICE cars, said Mr Chen.
According to Mr Krisda, another factor affecting sales of EVs and ICE cars this year is banks being more selective about lending to prospective buyers.
The FTI attributes the decrease in auto loans to banks' concerns about non-performing loans (NPLs) as Thailand is struggling with high household debt. The household debt-to-GDP ratio is currently 91%.
The restricted access to loans and the sluggish economy are blamed for causing a significant drop in domestic car sales between January and May.
Total car sales decreased by 24% year-on-year to 260,365 units for the period. BEV sales increased by 13% to 28,148 units, but in May they plunged by 31% to 5,117 units, according to the FTI.
An unusual cause for the decline in EV sales is the considerable dip in prices as competition intensifies in the local market, said Mr Krisda. Lower prices make EVs more affordable, but if prices keep decreasing, potential buyers will delay their purchases on the assumption the price will decline after they buy a vehicle, he said.
Decreasing EV prices also affect EV insurance value, causing insurers to be more cautious when offering packages, said Mr Krisda.
NO CHANGE HERE
Major auto manufacturers do not believe any changes in EV insurance policies will significantly affect their car sales.
"We do not foresee an issue with insurance premiums for Volvo cars as we already have in place an insurance partner for all customer cars," said Chris Wailes, managing director of Volvo Car Thailand.
In addition, the company is building a battery repair centre, which should allay any concerns for insurers of Volvo cars, he said.
In the commercial EV segment, the insurance issue should not affect sales, including for electric buses and trucks, said Somphote Ahunai, chief executive and founder of Energy Absolute, a renewable energy and commercial EV developer and operator.
"This issue mainly concerns passenger cars, which are smaller than commercial cars," he said.
Commercial EV operators are not always required to change batteries that malfunction because the batteries can be repaired, helping them save money, said Mr Somphote.
TIME NEEDED
Thakorn Piyapan, president of TMBThanachart Bank (ttb), said as the market transition to EVs, it is likely to face challenges both domestically and internationally.
It will take more time to stabilise the market both locally and globally, as EVs grab a higher market share and economies of scale form in the EV segment, said Mr Thakorn.
"Despite a gradual increase in the market share of EVs for Thailand's new car sales, the overall share of EVs remains small compared with the entire automotive market. Further development and adoption of EVs will take more time," he said.
As auto loans are a core business for ttb, the bank is committed to understanding the new automotive market, said Mr Thakorn. The bank will take more time to thoroughly study both the opportunities and challenges of the EV segment to adapt operations accordingly, he said.
"For auto loan approvals, we will primarily consider the risk profile of customers, especially their ability to repay debt, rather than the type of car," said Mr Thakorn.
The bank applies the same auto loan criteria for both EVs and ICE cars, he said. However, there are concerns specific to EVs, such as the depreciation of used EV prices. Despite these risks, ttb continues to offer loans for used EVs selectively, allowing the bank to learn about this market segment, said Mr Thakorn.
The slower pace of auto loan growth for banks aligns with the country's economic conditions and the state of the automotive industry, he said. The weakened debt repayment ability of car buyers is a significant factor preventing them from accessing loans for both ICE cars and EVs, said Mr Thakorn.
The deeply discounted prices of EVs are another reason buyers are delaying their purchases, he said.
Mr Thakorn said adjustments in EV insurance criteria that result in higher premiums have not directly affected the auto loan business. However, these factors may prompt EV buyers to consider more comprehensive expenses other than fuel costs before deciding to buy a car, he said.
Given the uneven economic recovery, elevated household debt and the Bank of Thailand's responsible lending practices, Mr Thakorn said ttb focuses on asset quality and controlling NPLs rather than loan growth. The bank also prioritises assisting individual customers in tackling existing debt, he said.
Sakchai Peechapat, chief executive of Tisco Financial Group, a holding company of Tisco Bank, said the auto loan business has been affected by slower economic growth and decreased consumer purchasing power. However, the price cuts for EVs and higher EV insurance premiums are unlikely to directly impact auto loan growth, he said.
Based on economic circumstances, lower new car sales and challenges in debt repayment, Tisco is projecting flat growth for auto loans this year and will focus more on used car loans rather than new car loans, said Mr Sakchai.
"Credit costs for auto loans have increased since the start of the year and are expected to continue rising in the second half, in line with the economic environment. However, the bank anticipates it can manage NPLs in the auto loan sector this year," he said.
According to central bank data, the banking sector's auto loans contracted by 3% year-on-year in the first quarter this year, compared with a 0.4% decline in the previous quarter. Special mention loans, which are debt payments overdue from 31-90 days, for auto lending rose to 14.5% in the first quarter this year from 14.3% the previous quarter. NPLs for auto loans increased slightly to 2.14% from 2.13%.
Piti Disyatat, secretary of the central bank's Monetary Policy Committee, stated in a recent monetary policy forum that the higher auto loan rejection rate aligns with the higher credit risk of borrowers, as banks have not changed their loan criteria.
"The drop in used car prices is also preventing borrowers from accessing new car loans. Typically, car buyers sell their existing cars to obtain cash for a down payment on a new car. The drop in used car prices means less cash for new buyers' down payments," he said.
Thai auto exports have slowed in line with weak external demand, noted the central bank.