Editorial: In light of EV fire risk, dealers should prepare for higher insurance costs

The property and casualty insurance industry is taking a closer look at automotive retailers and service operations, trying to determine the risk posed by the growing number of hybrid and battery electric vehicles coming in for maintenance and repair.

Zurich Insurance Group, a large provider of insurance to franchised auto dealers, released a series of best practices for its clients to mitigate property damage from thermal runaway battery fires, which can be difficult to extinguish.

Some of the recommendations are common sense, such as having the proper equipment to be able to move heavy battery packs when necessary, and having adequate automatic sprinkler systems installed that are able to at least keep a potential conflagration from spreading until firefighters arrive. Others are expensive to nearly unworkable, such as segregated battery storage, separate service bays for EVs that are away from other operations, and having those bays individually fire rated and nearest to entrances so as to provide easier access to emergency services.

For now, insurance providers, including Zurich, are investigating whether the industry's conversion to hybrids and EVs presents a greater loss risk, and thus warrants higher premiums for coverage. They will look at the claims history of dealership fires involving EVs and batteries, and compare the frequency of incidents as well as the size of the losses, a Zurich executive told Automotive News.

For dealers, the possibility of higher insurance premiums can get added to the growing list of capital and operational costs that have grown from the conversion to electrified propulsion, including having to install chargers. And it brings up the very real possibility that insurers may begin setting the future premiums of their dealer clients not only on how they run their own operations, but on the broader EV strategy of their individual brands. It's worth noting that some automakers have been far more supportive than others in helping their dealers absorb those conversion costs.

Dealerships' fixed operations departments have always had a risk of fires from vehicles being serviced. Thankfully, incidents are less frequent because of efforts over the years to lower that risk with improved safety procedures and better equipment. If insurers ultimately find that losses from fires change as electrification becomes more prevalent, dealers better prepare themselves now.