• Government policies on climate change and
  consumer demand could see the number of electric cars reach 100 million by
  start of next decade compared with seven million today.
• China is
  the world's largest market for electric vehicles in total, accounting for
  around 45%, while a quarter (24%) are in Europe and 22% in the US. In Asia - China,
  Japan and India to drive future sales.
• New risk challenges to manage for automotive
  industry and their insurers: potential defect and performance issues; more complex
  and costly repairs; new fire and cyber threats; and even sustainable sourcing
  and disposal of critical components and raw materials.
• Increasing complexity of supply chains and use
  of new technology will have a strong impact on product liability insurance in
  the commercial insurance segment.

JOHANNESBURG/LONDON/MUNICH/NEW YORK/PARIS/SAO
PAULO/SINGAPORE - Media OutReach - June 09, 2020 - Around
the globe, the take-up of electric cars is expected to accelerate rapidly in
future, driven by consumer demand and government policies aimed at tackling
climate change. The future of mobility is clearly electric, but the transition will
lead to a fundamental change in risk for manufacturers, suppliers and insurers alike
and will have a significant impact on automotive product liability insurance,
according to a new
report from insurer Allianz Global Corporate & Specialty (AGCS).

"From supply
chain networks to production processes to the product itself -- the automotive industry
will have to respond to many emerging risks to make the transition to electric
vehicles happen," says Daphne Ricken, Senior Underwriter Liability at AGCS. "The
anticipated growth of electric cars brings the prospect of new defect or
performance issues; more expensive repair costs; new fire and cyber threats;
and even reputational issues around sustainable sourcing and disposal of
critical components and raw materials for batteries."

A new AGCS publication,
The Electric Vehicles R-EV-olution:
Future Risk And Insurance Implications, highlights that
the use of electric cars is expected to soar in future as their cost gradually declines,
the choice of available new models likely doubles within five years, their
driving range increases and consumers, as well as governments, demand greener low-emission
vehicles. The International Energy Agency has
predicted there could be more than 100 million electric cars on the roads in 2030
-- up from around seven million today -- with annual sales in the region of 20 million,
driven by growth in China -- already the world's largest market -- the European
Union (second largest), Japan, Canada, the US and India, in particular. Amid COVID-19, the outlook for 2020
global electric car sales becomes more difficult, given prolonged disruption to
dealers, buyers and supply chains. The number of electric vehicles sold in
China plummeted 54% in January 2020, according to data from the China
Association of Automobile Manufacturers.

Government
policies aimed at tackling climate change

Globally, the 2015 Paris
Agreement has been the catalyst for a number of country- and region-specific
regulations focusing on the environment. For example in Asia, China's
automakers must make at least 7% of their sales electric by 2025 and India targets
for 30% of cars on roads to be electric-powered by 2030. Singapore is also
planning to phase out internal combustion engine vehicles by 2040 paving the
way for greater adoption of electrical vehicles in the intervening years.

New risk exposures

While the coronavirus
crisis may dampen the outlook for global electric car sales for 2020 and beyond,
the anticipated long-term growth also brings a range of technical and
operational risks, both from a product liability perspective and in other
areas:

Safety and reliability: Tests
conducted by the Allianz Center for Technology Automotive (AZT
Automotive) have shown that the high voltage components of electric cars are
well-protected and will not be affected in most crashes. Statistical evaluation
of Allianz claims also shows that electric vehicles are less likely to be
involved in accidents today -- they typically drive short distances with limited
mileage overall. However, any damage sustained can be, on average, more
expensive than for conventional cars.

"If the
battery in an electric car has to be replaced, it can result in a total loss in
many cases. In addition, the fact that they can only go to specialist repair shops
can contribute to costs," says Carsten Reinkemeyer, Head Of Vehicle Technology
And Safety Research at AZT Automotive.

Battery life
and performance are critical issues for electric cars. Given the high cost of
replacement or repair of battery units, a failure to live up to performance
guarantees will pose questions around liability for manufacturers and suppliers.

Fire threat: As
with conventional vehicles, defective electrical components and short circuits
can spark a fire, while lithium-ion batteries may combust when damaged,
overcharged or subjected to high temperatures. High voltage battery fires can
be very intense and difficult to extinguish, and can also release high levels
of toxic gases -- such fires can take 24 hours or longer to control and be made
safe. Due to the relative rarity of such fires to date, response and rescue
services have limited experience of dealing with such incidents.  

Environmental
issues: Despite their green credentials, environmental
issues can represent a potential liability and reputational risk for vehicle
manufacturers and suppliers. A rapid uptake in electric cars will require
manufacturers to source sustainable supplies of critical components and raw materials
as they ramp up production. For example, battery technology will drive a huge
increase in demand for cobalt and lithium, outstripping
current supply -- lithium supply has been predicted to triple by 2025. Effective
recycling and reuse of materials will therefore be essential. Environmental and
social concerns will also put emphasis on the sustainable sourcing of minerals,
as well as traceability and transparency of supply chains. High voltage
batteries could also pose a pollution risk, if not properly disposed of.

Speed to
market and potential defects and recalls: Manufacturers
are under pressure to accelerate the transition to electric mobility. The
combination of new technology, short development cycles and new 3D/4D printing in
production could result in an increase in defects and quality issues, triggering
product recalls for the automotive industry -- which are already among the largest
and most complex of any sector, according to AGCS claims analysis.

Cyber
concerns: Electric cars are likely to have increased connectivity
and reliance on data, sensors and software, including artificial intelligence,
to manage vehicle systems and aid driving. As with conventional vehicles, increased
connectivity is likely to give rise to cyber vulnerabilities, including the
threat of malicious attacks, system outages, bugs and glitches. There have already
been product recalls in the automotive sector as a result of cyber security.

Insurance
implications and claims complexity

Electric mobility will have many implications for
insurance -- in particular automotive product liability insurance -- and claims,
as technology creates new risks and exposures, and as liability shifts within
the supply chain.

"Electric vehicles
will consist of fewer but more integrated parts and components. What may have
been three parts in a conventional car could be only one part in an electric
car. However, the lower number of parts is increasingly connected through
sensors and embedded software, adding a new layer of complexity and raising
questions around how these parts interact and which producer or supplier is
liable for a potential defect or faulty control," Ricken
explains. "The increased complexity of the automotive supply chain and the
reliance on software and technology producers will lead to new exposures and
split liabilities in the value chain."

Fire and
explosion risks associated with high voltage batteries could give rise to
claims for commercial property insurers, in particular if multiple cars are
charged in underground car parks. Claim scenarios are manifold -- ranging from
overheated battery leads resulting in fires and property damage to breakdown,
leading to fire, as a result of electronic failure of the battery management
system.

Insurers may also expect to see a potential increase
in product recall/liability claims from new technologies, components, faster
development times and shorter testing periods. Last, but not least, there will
be employers' liability exposures -- such as potential toxic fumes and fire
risks during 3D printing or the handling of lithium batteries related to fire
and contamination.

About Allianz Global Corporate & Specialty SE

Allianz
Global Corporate & Specialty (AGCS) SE is a leading global corporate
insurance carrier and a key business unit of Allianz Group. We provide risk consultancy, Property-Casualty insurance solutions and alternative risk
transfer
for a wide spectrum of commercial, corporate and specialty risks across 10
dedicated lines of business.

Our customers
are as diverse as business can be, ranging from Fortune Global 500 companies to
small businesses, and private individuals. Among them are not only the world's
largest consumer brands, tech companies and the global aviation and shipping
industry, but also wineries, satellite operators or Hollywood film productions.
They all look to AGCS for smart answers to their largest and most complex risks
in a dynamic, multinational business environment and trust us to deliver an
outstanding claims experience.

Worldwide,
AGCS operates with its own teams in 33 countries and through the
Allianz Group network and partners in over 200 countries and territories,
employing over 4,300 people. As one of the largest Property-Casualty units of
Allianz Group, we are backed by strong and stable financial ratings. In 2019, AGCS
generated a total of €9.1 billion gross premium globally.

www.agcs.allianz.com

LinkedIn

Twitter: @AGCS_Insurance

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