Blog: How can insurers make like-for-like EV replacement vehicles a reality?

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The variety and cost of vehicles makes credit hire replacement more challenging than ever, but replacing EVs doesn’t have to be the headache it once was, explains James Roberts, head of insurance sales at Europcar.

When the Financial Conduct Authority launched in 2013, replacing the FSA, it gained a new objective to ‘promote effective competition in the interests of consumers’. The careful choice of the word ‘promote’ lets us know then that the FCA would not be sitting back and waiting for problems to raise their ugly heads but would instead proactively tackle what it identified as potential issues.

More than a decade on there’s no doubt the FCA has stood by its mission. The Consumer Duty regulation introduced last year set a new level of expectation on financial services providers to provide good and fair value. And how successfully accident and vehicle replacement hire providers offer like-for-like replacement vehicles could be an area that comes under scrutiny, especially as the electric vehicle market matures.

With higher costs and continued pressures on the supply chain, providers are increasingly struggling to offer suitable replacement vehicles, particularly when the vehicle being repaired is electric. Sales of fully electric cars hit the 1 million landmark at the start of 2024 and The Society of Motor Manufacturers and Traders (SMMT) figures for February showed that Plug-in hybrids (PHEVs) recorded the largest proportional growth for the month, to reach 7.2% of the market. This growth puts new pressure on insurers as EV drivers are likely to expect an EV replacement.

A survey commissioned by Europcar last year suggested that insurance providers are not currently meeting expectations for replacement vehicles. Based on responses from more than 200 EV drivers, we found that 91% would expect their insurer to provide a like-for-like replacement if their own vehicle needed repairs after an accident. Unfortunately, that is not always possible despite insurers’ best EV intentions.

Although policies have been amended to suit electric and hybrid models, and repair networks have made changes to ensure they can work safely on the increasingly electrified car parc, providing replacement EVs continues to be a challenge. The cost and availability of EVs are two significant blockers, leaving many providers at risk of breaching Consumer Duty requirements if they cannot offer a customer the best solution for their needs.

Like-for-like or falling short?

With UK roads hosting a wider range of cars than ever before, it is not practical for a bodyshop to hold a permanent fleet that is capable of meeting every possible customer requirement. When a like-for-like cannot be offered, the insurer may need to intervene, impacting the claims journey and customer experience.

To avoid this situation, a combination of credit hire fleet and short-term rental could be the answer. The most common vehicle types can be kept on fleet, while a rental partner assists when other vehicle types are required. This ensures the customer always receives a suitable replacement vehicle without the bodyshop or replacement vehicle hire provider having to hold a fleet of hundreds of vehicles, each incurring servicing, maintenance and insurance costs.

Examining the supply chain

The other step insurers need to consider is how fit for purpose their supply chain is to respond to the more diverse and increasingly electric vehicle parc. Relying on a sole supply partnership introduces a level of vulnerability to regulator scrutiny that most insurers would want to avoid.

Rental can help to avoid the pitfalls of sole supplier agreements. Insurers working with only one replacement vehicle partner are at risk of breaching their Consumer Duty if they are not helping customers to make ‘good financial decisions’ by limiting the choice of vehicles for their needs. 

While some insurers see sole supplier agreements as the best option from a cost-negotiation, supply chain management and logistics point of view, it can limit the choice a customer expects. This will be particularly concerning where providers attempt to convert an EV booking into a mild hybrid or ICE vehicle because they do not have the right models immediately available. 

Working with a panel of suppliers who recognise healthy competition, actually changes the dynamic for an insurer. There’s an appetite to do things a little differently and work collaboratively for the best outcomes. And this means the insurer can remain focused on customer satisfaction and retention. 

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