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Shifting Gears: How the Surge in Electric Vehicle Adoption is Driving the Future of Auto Insurance

The electric vehicles insurance market is mostly driven by the growing adoption of electric vehicles worldwide.

April 23, 2025 • Estimated Reading Time: 8 minutes

Electric Vehicles Insurance Market Size

Electric Vehicle Adoption

The electric vehicles insurance market is mostly driven by the growing adoption of electric vehicles worldwide. Based on data from the International Energy Agency, global sales of electric vehicles were 13.9 million in 2023 and is expected to reach a value of 73 million (in number of units) by 2040, growing at a CAGR of ~10.2%.

Electric vehicle sales have surged due to falling costs, technological advancements, and strong government support. Globally, 10% of passenger vehicles sold in 2022 were fully electric, a tenfold increase in just five years, according to data from the International Energy Agency. EVs produce fewer greenhouse gas emissions than internal combustion engine vehicles, with future emission reductions expected as the electric grid shifts to zero-carbon power. Accelerating EV adoption is a key strategy in reducing transportation-related emissions, alongside promoting public transit, biking, and walking. Countries like Norway (80%), Iceland (41%), and Sweden (32%) are leading the EV revolution, with China (22%) following as the world's largest car market. The European Union (12%) and the United States (6%) are also seeing rapid growth, driven by fiscal incentives designed to support EV adoption (World Resources Institute, 2023).

Annual Insurance Cost for Electric Cars

The other key driver of the electric vehicles insurance market is the growing trend of the average annual insurance cost of electric vehicles. According to Market Watch dataset, the average annual insurance cost of a Tesla Model Y grew from an average value of $2,744.64 in 2020 to a value of $2,985.00 in 2022, registering a CAGR of ~4.3%. While the average annual insurance cost of a Tesla Model 3 grew from an average value of $2,840.21 in 2020 to a value of $3,204.71 in 2022, registering a CAGR of ~6.2%. These values were collected and averaged from 14 car Insurance leaders in the United States for these 2 models of electric cars.

Average annual insurance cost of an Electric car is considerably higher than the average annual insurance cost of a Gas car. The average annual insurance cost in US of an electric car, among our sample composed by 8 electric car models, is ~$2,917.34; which is ~44.4% higher than insuring a Gas car.

The main reason explaining the higher insurance cost of an electric vehicle vs a gas one, is the repair cost, that is considerably higher for electric vehicles.

Most Attractive Markets for Electric Vehicles Adoption in Relative Terms

Our analysis shows that the countries best positioned for the adoption of electric vehicles (EVs) are Qatar, Iceland, the United States, Norway, and Switzerland. These countries exhibit a strong balance between economic capacity and energy infrastructure, as captured by the intersection of Electricity Density and GDP per Capita. Qatar and Iceland, with their high electricity generation per unit area, benefit from well-established energy grids, making them ideal for the widespread adoption of EV charging infrastructure. 

Meanwhile, the United States, Norway, and Switzerland also show strong economic conditions, as reflected in their high GDP per capita, which supports consumer purchasing power and the government's ability to invest in EV incentives. This combination of robust energy capacity and high-income levels positions these countries as global leaders in the transition to electric vehicles.

Methodology:

The methodology for identifying the top countries for EV adoption involved a two-step process:

  • Normalization of Indicators: Given the differing scales of Electricity Density (kWh/m²) in Purchasing Power Parity (PPP 2017); and GDP per Capita (USD), we first normalized both indicators using a min-max normalization. This ensured that the two variables were scaled comparably, with values ranging between 0 and 1. Normalization was essential to prevent the disparity between the typically lower values of Electricity Density and the much higher values of GDP per Capita from skewing the results.

  • Index Construction: We constructed an Ease of EV Adoption Index by assigning weights to each indicator. A 60% weight was given to Electricity Density to account for the importance of energy infrastructure in supporting EVs, while GDP per Capita was assigned a 40% weight, reflecting its impact on consumer purchasing power and governmental support. The final index score for each country was computed by combining the normalized values of both indicators based on these weights. Countries with higher index scores were determined to be in a better position for EV adoption due to their superior energy infrastructure and economic conditions.

Most Attractive Markets for Electric Vehicles Insurance Penetration in Relative Terms

After the construction of the Ease of Adoption of Electric Vehicles Index, the analysis continues with the interjection of these scores with our proxy for Insurance Maturity that is the Average Insurance and Financial Services as percentage of Services Trade, among our sample of 60 countries.

The result is that the countries with the highest Easiness to adopt Electric Vehicles and the highest Insurance Maturity are Luxembourg, Bahrain, United States, Singapore, Canada, United Kingdom and Hong Kong.

Conclusion

The electric vehicle (EV) revolution is poised to transform not only the automotive industry but also adjacent sectors like insurance. As global EV sales continue to surge—driven by technological advancements, falling costs, and supportive government policies—the demand for specialized electric vehicle insurance is set to skyrocket. Our analysis projects that the Global Total Addressable Market for EV insurance will reach $508.67 billion by 2024, underscoring the immense growth potential in this space.

Countries such as Qatar, Iceland, the United States, Norway, and Switzerland lead the charge in EV adoption, thanks to a strong intersection of energy infrastructure and economic capacity. These countries, with their robust balance of electricity density and high GDP per capita, represent the best opportunities for rapid EV penetration. When we overlay this with the insurance maturity landscape, nations like Luxembourg, Bahrain, the United States, and Singapore emerge as prime markets for EV insurance growth.

In sum, the convergence of increasing EV adoption, higher insurance costs for electric vehicles compared to gas-powered cars, and the maturation of insurance services in key markets presents a unique opportunity for insurers to capitalize on this accelerating trend. As electric vehicles reshape the future of transportation, the insurance industry will need to innovate and evolve, offering tailored products and solutions that meet the demands of this rapidly growing market. The future of auto insurance is undeniably electric, and those who shift gears early will be best positioned to lead in this emerging market.

Sources & References

International Energy Agency. (2023). SDG7 Database. https://www.iea.org/data-and-statistics/data-product/sdg7-database#energy-intensity 

Market Watch. (2024). The Future of Car Insurance: The Rise of EVs. https://www.marketwatch.com/insurance-services/auto-insurance/future-of-car-insurance-rise-of-evs/ 

World Bank. (2024). Insurance and financial services (% of commercial service exports). https://data.worldbank.org/indicator/TX.VAL.INSF.ZS.WT