Electric vehicles and usage-based auto insurance: What every insurer needs to know
Key takeaways
- EVs introduce new risk factors not fully captured by traditional insurance models.
Variables such as higher purchase prices, different maintenance needs, charging‑station‑dependent routes, lack of gas mileage as a distance proxy, and self‑driving features complicate risk prediction. - Usage‑based insurance (UBI) helps fill pricing and risk‑assessment gaps.
UBI allows insurers to assess actual driving behavior—such as speeding, hard braking, daily distance, and swerving—rather than relying heavily on demographic proxies (age, gender). This is especially valuable for EV drivers whose behaviors and usage patterns differ from gas‑powered vehicles. - Telematics integrates seamlessly with EVs’ connected‑car systems.
This enables insurers to access real‑time driving data that creates a clearer picture of EV driver behavior and allows for more precise risk scoring and personalized pricing. - UBI strengthens customer‑insurer relationships for EV owners.
When EV drivers opt into UBI, insurers gain clearer insights into individual driving habits, enabling fairer pricing and helping improve retention through transparency and personalized engagement.
Introduction
When gas prices rise, consumers take notice — and lately, they have had good reason to. The national average price for a gallon of regular gasoline surpassed $4.00 in early April 2026, the highest it has been since Russia’s invasion of Ukraine in 2022. Pain at the pump is already shifting consumer behavior: Data from car shopping site Edmunds shows that electric vehicles — including battery EVs, plug-in hybrids, and hybrids — accounted for 22.4% of all vehicle research activity in the week of March 2, 2026, up from 20.7% the week prior, with battery EVs seeing the largest single-week gain. A recent poll found that a third of Americans said they would consider purchasing an EV amid higher gas prices.
Increased EV ownership introduces new variables that traditional insurance methods may not take into account. Insurers must prepare for growth in EVs — but how can they quickly understand the driving behaviors of EV owners so they can shift their pricing methods?
The new challenges EVs pose for auto insurers
The global EV market share is expected to grow to more than $1.3 trillion by 2028, leaving insurers only a few years to adapt to the growing number of EVs on the highway.
Although EVs promise less reliance on gas and a brighter future for environmental health, higher price points and EVs’ unique requirements are changing the way insurers calculate risk. Predicting risk may be straightforward with gas-powered vehicles, but insurers need to consider several additional factors when it comes to EVs, including:
- Distance is no longer calculated by gas mileage
- If an EV offers self-driving technology, fault can be difficult to determine
- The question of whether common routes are defined by drivers’ daily activities or the location of the nearest charging station
Usage-based insurance fills pricing gaps for EV drivers
Insuring an EV profitably requires a new approach. Insurers need to shift away from relying exclusively on traditional pricing and risk assessments, and transition to usage-based insurance (UBI) to best assess EV drivers.
UBI solutions more accurately capture the complexities of EVs compared to traditional proxies. For example, an insurer can better calculate the risk of an individual driver by knowing their actual driving behavior versus using traditional scoring factors like age and gender.
Insurers need to shift away from relying exclusively on traditional pricing and risk assessments, and transition to usage-based insurance (UBI) to best assess EV drivers.
Typical examples of driving behaviors that can shape an accurate risk calculation with UBI include:
- Speeding
- Hard braking
- Average distance traveled daily
- Average overall vehicle use
- Swerving
When EV drivers embrace UBI, it becomes easier for insurers to know their drivers better through actual driving data. And the key to accessing individual driving data in this new approach is telematics insurance.
The case for telematics insurance with EVs
In addition to helping you better understand your EV drivers, telematics pair seamlessly with EV-connected car capabilities for data collection measures. Since EVs provide more data than their gas-powered counterparts, they equip you with the data needed to accurately identify safe drivers.
The rise of the EV has also presented emerging opportunities for assessing risk with factors related specifically to these vehicles, like:
- Use of self-driving mode (if applicable)
- Average kilowatt-hour of electricity used
- Existing scoring factors like hard braking or rapid acceleration
EVs also offer an easier path to consumer buy-in. UBI is an enticing way for consumers to offset the higher cost of EVs. UBI premiums can be more accurately and fairly assessed based on actual driving habits. The result? Safer drivers in your book of business and long-term loyalty to their provider.
Rethink your EV insurance strategy with Arity
Looking for a telematics provider to help shape your EV insurance pricing? Unlock new insurance solutions, accurately price premiums, and better understand EV drivers with Arity. Learn how a comprehensive telematics program can pay off as you price more EV drivers.