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Posthaste: If Canadians think car insurance is steep now, just wait until we're driving EVs Back to video

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Canadians already complain about the higher costs of electric vehicles, but just wait until they get the insurance bill.

By 2035 all vehicle sales in this country will be zero emission, according to a mandate from the federal government.

But as Canadians replace their gas and diesel vehicles with electric in coming years, they should expect to pay more for auto insurance, says a report by credit rating agency Morningstar DBRS.

EV uptake has been slower in Canada than in Europe, the United Kingdom and even the United States for reasons ranging from the higher cost of vehicles, “range anxiety” in Canadian winters and a lack of charging stations.

New vehicle registrations of EVs in 2022, including hybrids, accounted for just 2.7 per cent of the total in Canada, according to Statistics Canada —  far lower than in Europe and the U.K., where rebates are more prevalent and infrastructure more advanced.

Judging by the experience of drivers across the pond, Canadians can expect higher insurance premiums as EV uptake increases, mainly because these vehicles are more expensive and cost more to repair. Average electric car insurance costs in the U.K. leapt 72 per cent last year, compared with 29 per cent for gas and diesel models, the Financial Times reports.

One carrier even suspended coverage for EVs in order to reassess the cost of repairs, it said.

While an electric car has fewer serviceable parts than an internal combustion engine, the cost of replacing batteries, the availability of parts and fewer technicians to fix them can drive up the bill for repairs and insurance, said DBRS.

Batteries are expensive, representing about half the overall vehicle cost, and even minor damage can be a big deal. A small dent can destabilize the battery, potentially causing fires or even explosions.

The FT reports that EV claims are typically 25 per cent higher than for gas or diesel vehicles and take 14 per cent longer for repairs.

“These vehicles are, in effect, computers on wheels, packed with expensive and complex parts and advanced technology that can make EVs expensive to repair after a collision,” said DBRS.

In fact, there have been reports of insurers writing off an EV with low mileage rather than replace the battery.

A media report out of British Columbia said the province’s main insurer ICBC wrote off an entire EV because the cost of replacing the battery would be the same as buying a new vehicle of the same model. And there have been reports in the U.K. of insurers writing off electric cars after minor collisions, rather than repairing the battery pack.

One thing Canadians drivers have going for them is a highly regulated auto insurance industry, said DBRS. Rate changes must be approved by provincial regulators and this could ease the impact of rising premiums.

“However, we expect that auto insurance rates will trend upward over time as insurers generate more claims data for EVs and reflect that experience in pricing,”  said Victor Adesanya, Morningstar DBRS vice-president of insurance.

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Shelter costs are the biggest driver of Canadian inflation, but some have more influence than others — and at different times.

Right now mortgage interest tops the gains, adding more than a full percentage point to inflation, said BMO senior economist Robert Kavcic who breaks down the key components in today’s chart.

“Some will argue that this is a reason to cut rates, since inflation excluding this component is more or less on target,” said Kavcic.

Back at the start of 2022 when interest rates were still at rock bottom, home prices were the biggest driver. As the chart shows, consumer price index components influenced by these prices can swing harder and impact inflation more quickly.

Rent inflation, which is slower moving, brings up the rear. Demand shock from the surge of non-permanent residents is mainly behind this inflation’s pop, something that is beyond the Bank of Canada’s scope, he said.

• Finance Minister Chrystia Freeland will provide an update on the government’s economic plan.
• Restaurant Brands International Inc. will release its fourth-quarter financial results before markets open.
• CRTC hosts a five-day hearing for its review of the wholesale high-speed access framework.
• Earnings: The Coca-Cola Company, Hydro One Ltd, Hasbro Inc, RioCan REIT, H&R REIT, Dream Industrial REIT, Shopify Inc, Dye & Durham Ltd, Molson Coors Beverage Co.
• Today’s Data: All eyes will be on United States inflation today, but economists don’t expect anything dramatic from the data.

Get all of today’s top breaking stories as they happen with the Financial Post’s live news blog, highlighting the business headlines you need to know at a glance.

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Juggling multiple debts can be stressful, especially if your budget is already stretched to the max, which makes consolidating your debts tempting. Debt counsellor Sandra Fry says there are different ways to do this, so pay attention to the details to make sure you don’t end up worse off. Find out more

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McLister on Mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here 

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.

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