Munich Re, the world’s largest reinsurer, has developed a new insurance product for batteries to cover the damage from long-term usage in vehicles. The “Battery Elongation Over Time” insurance product — made using Munich Re’s Insurance Laboratories — would give electric vehicle owners more protection and eliminate the need for various estimates of the cost of maintenance and repairs due to battery wear and tear.
The term “duration of use” has been used for several years in the insurance industry, specifically to describe the average number of years on a vehicle’s warranty. However, Munich Re has now developed a new term for long-term battery usage.
According to Munich Re, the insurance could be useful for a range of individuals, including long-term battery owners, hard-working students, active travelers, and business travelers who might frequently need to move their vehicles or their fleets of vehicles.
The concept is based on long-term battery life. For instance, “one of the features of a NHTSA- and NHTSA-compliant battery,” the Munich Re press release stated, “is its design around a long lifetime,” and that “the battery’s survival over time … is defined as “duration of use.”
Although there is a risk involved in lending to a long-term battery owner for a length of time, there would be no excess cash premiums added to policyholder premiums.
Munich Re offers another version of the insurance product that includes a link to Tesla’s current problems with batteries. Tesla, which is making a massive bet on its cars’ ability to go 200 miles per charge (read: range anxiety), can’t say as yet how many of the cars currently in production are affected by recent fires.
Nonetheless, that auto-maker knows what the average battery lifespan is. It predicts that, “on average, the battery fully achieves its 1,600-miles-per-charge potential after 100,000 charging and discharging cycles, with the battery’s total length of life remaining of approximately 13 years for LEAFs and 14 years for eGolfs.” That’s not a particularly long lifespan, but it’s better than nothing.
Here’s how the insurance product would work: Although the typical car warranty only protects against a possible failure during 1,600,500,000,000,000 charging/discharging cycles (and insurance is not necessarily for that entire period), the insurance product, along with Tesla’s own estimate for the battery’s life, could combine both of those numbers to tell a potential insurance applicant that he/she has at least a 50% chance of surviving the battery life of many, many cars over 100,000 miles.
At that point, someone might consider the fact that the battery is for sale because Tesla is in hot water, and would probably be happy to put down the cash if they were the guy.
Is the Munich Re product really feasible? Will car owners be shocked by the insurance premiums they’re forced to pay? Does that really make much sense?
No, of course not.
The story is a cautionary tale for Tesla, which is attempting to demonstrate that it, and electric cars, have a long-term future and can be a viable, non-corrupt business. Tesla needs to increase battery pricing and show the car’s performance is remarkable (not just breathtaking) to other automakers and investors (not just concerned with traditional recall-related scare tactics).
So here’s a public service announcement for Tesla: Hey, car owners. Tread carefully!
Andrea Miteski, PhD and MD in the field of reinsurance. Long term senior insurance executive with specialization of reinsurance optimization.