Adapting Motor Insurance in Southeast Asia in the era of BEVs, ADAS, and Connected Cars | Insights

Southeast Asia is in the midst of electrification transformation, Battery Electric Vehicle (BEV) sales growing to over 220,000 units in 2024—a 70% increase over the previous year. This growth is also impacting adjacent segments of the automotive ecosystem. One such impact is in motor insurance, a US$10 billion market in Southeast Asia where the adoption of BEVs has created more risks for insurance companies.

Motor insurance represents a major revenue source for insurance companies in Southeast Asia. As an example, in Thailand, motor insurance accounts for close to 20% of the overall insurance market, and more than half of the non-life insurance market. The motor insurance market is growing driven by a burgeoning middle class and increasing vehicle ownership rates. However, this traditional segment requires changes to adapt to and accelerate the adoption of cleaner and safer transportation.

About the Author

Cruz Cyrus

Corporate Innovation Lead for Insurance Southeast Asia
Tokarz Krzysztof

Senior Expert Automotive & Manufacturing Southeast Asia

Traditional Insurance Premium Setting Process

Motor vehicle insurance premiums have traditionally been determined based on several key factors, including the vehicle’s residual value, accident history, and driver demographics. Over the years, insurance companies have accumulated vast amounts of data and developed statistical models that allow them to assess risks and set premiums accordingly. While this approach has been effective for Internal Combustion Engine (ICE) vehicles, it has proven less reliable for BEVs, resulting in significant premium adjustments as insurers grapple with new risks and cost structures.

Current Challenges in BEV insurance

Higher insurance premiums for BEVs

BEV owners face higher insurance premiums compared to ICE vehicle owners—in Southeast Asia, premiums for BEVs versus comparable ICE vehicles can be 20–30% higher. For most BEV owners, insurance cost is the second largest cost of owning a BEV, behind depreciation, and ahead of electricity costs. This contrasts with ICE vehicles, where fuel costs are typically more prominent than insurance costs.

The higher-than-expected insurance costs can be perceived negatively, particularly by those switching from ICE to BEV, as the anticipated lower vehicle usage costs may not materialize. The growing awareness of higher insurance costs may also deter some ICE owners from making a switch they would have otherwise considered.

Costly repairs

A key factor behind higher insurance premiums is that repairs for BEVs are inherently more expensive. A common belief is that it is EV batteries are the primary culprit. This is a reasonable assumption to make since, until recently, they accounted for even as much as 50% of the BEV’s cost. Lately, the cost of producing EV batteries, lithium iron phosphate (LFP) in particular, has dropped significantly, by 20% in 2024 alone, making the relative cost of the EV battery around 30% of the vehicle cost in many cases. However, while the EV battery still constitutes a large share of the vehicle cost, the need to replace the battery is rare, making the impact of EV batteries on the motor insurance cost small.

Rather than batteries, other vehicle parts have a higher impact. This is due to some parts such as bumpers or side mirrors in BEVs having, on average, more sensors or cameras. Secondly, due to the very limited local supply chain for parts used by BEVs (since most of them are imported from abroad), there is a higher reliance on authorized dealers to conduct repairs. These dealers typically follow parts price guidance from official distributors, leading to higher prices for both parts and labor.

Mixed evidence about accident incidence

The impact of BEVs on accident incidence compared to ICE vehicles remains unclear, with mixed evidence and competing factors influencing outcomes.

On one hand, BEVs may pose a higher risk of accidents due to their faster and more instant acceleration, particularly for new drivers unfamiliar with their performance. Additionally, BEV drivers tend to skew younger and less experienced, potentially increasing susceptibility to distractions such as smartphone use. Usage patterns further complicate the picture, as BEVs are often driven more frequently in urban environments which are associated with higher accident exposure.

On the other hand, BEVs are typically equipped with more Advanced Driver-Assistance Systems (ADAS), such as automatic emergency braking and lane-keeping assist, which have been shown to reduce accident rates. These technologies can offset some of the risks associated with BEV performance and driver demographics.

Ultimately, the net effect on accident incidence is unclear and context-dependent, varying by driver behavior, vehicle design, and operational environments. Insurers in Southeast Asia may observe various outcomes based on local driving conditions, customer demographics and specific vehicles, underscoring the need for tailored risk assessment strategies.

The Need for a Better Understanding

Insurers must adopt a more nuanced approach to BEV insurance to align premiums with actual risks. Beyond pricing, insurers should proactively influence driver behavior and vehicle operation to mitigate risks and reduce premiums. Key areas requiring greater transparency and understanding include:

1. Granular understanding of ADAS

Advanced Driver Assistance Systems (ADAS) are more prevalent in BEVs and, on average, correlate with lower accident rates. However, ADAS encompasses diverse systems with varying capabilities across vehicle models. For instance, Euro NCAP’s 2024 testing of 45 vehicles equipped with Autonomous Emergency Braking revealed significant performance variance, with scores ranging from 4.0 to 9.0 on a 9-point scale. Testing conducted by organizations such as Euro NCAP are done in uniform conditions, allowing for direct comparisons. However, these tests do not take into consideration local driving conditions, which may impact system behavior. Additionally, drivers can adjust or disable some ADAS features, negating their potential benefits. Over-the-Air (OTA) updates further complicate insurers' ability to assess the impact of ADAS, as automakers can modify system functionality post-purchase.

Figure 1: Scores for AEB Car-to-Car scenarios in 2024

2. Vehicle performance characteristics

BEVs' instant torque delivery enables rapid acceleration, particularly at low to mid-speed ranges. This performance advantage, coupled with higher horsepower (typically 30–60% more than comparable ICE vehicles), can increase the risk of accidents, especially for new BEV drivers. In Southeast Asia, several automotive players have introduced high-performance BEVs in traditionally non-performance segments. For example, SUVs and pick-ups in Thailand now feature 400–600 horsepower and can accelerate from 0 to 100 km/h in under four seconds, despite weighing over two tons. This combination of power, weight, and high-torque acceleration can pose additional risks for insurers.

3. Driving behavior and usage patterns

BEV usage patterns and driver behavior further complicate risk assessment. Many BEVs are predominantly driven in urban areas, where traffic density and congestion increase accident likelihood. Additionally, some buyers may choose BEVs because their intention is to drive longer distances to maximize fuel savings, exposing them to higher accident risks. BEV drivers may also exhibit distinct behavioral profiles, such as younger demographics prone to smartphone use or reliance on sophisticated infotainment systems, which can increase distraction-related risks. At the same time, insurers typically lack comprehensive visibility into these factors, as adoption of telematics solutions – such as onboard diagnostic devices and mobile applications that collect and transmit driving data – remains limited.

4. Repair cost transparency

BEV repair costs vary significantly across components and manufacturers, and are generally higher than those of ICE vehicles within similar segments. While over the last 3 years insurers improved their understanding of this aspect for popular brands, newer entrants to the market often lack this transparency. This can lead insurers to apply more conservative pricing models, especially for new brands, potentially resulting in higher premiums until more comprehensive repair data becomes available.

Addressing these areas would help develop more accurate pricing models and proactive risk mitigation strategies tailored to the unique challenges of BEVs.

The Case for a Greater Role for Automotive OEMs in the Insurance Context

Currently, the car insurance industry is dominated by insurance companies. While there have been some instances of OEMs venturing into this space, these efforts have not significantly altered the industry’s operation. However, given the current market dynamics and technological advancements, the question arises: is it time for OEMs to play a more substantial role in car insurance?

Argument #1: As competition intensifies, automotive OEMs must look beyond traditional vehicle sales to create distinctive value propositions for their customers.

Competition among car OEMs is fiercer than ever, requiring them to find new ways to provide value and differentiate themselves. In 2023, over 140 brands competed for a 30-million vehicle Chinese market¹, nearly 100 of them being domestic brands. Many of Chinese manufacturers have targeted Southeast Asia as their first expansion region outside of China. In Thailand, there was only one Chinese brand on the market until 2020. By the end of 2024, 20 new brands (from 11 players) from China had entered Thailand. This influx of competitors is creating a market squeeze and intensifying competitive pressures.

Most new entrants in Southeast Asia focus on selling BEVs. In this segment, product differentiation is becoming increasingly challenging. Interior design across brands often follows a similar minimalistic approach, with a simple dashboard layout with a central touchscreen serving as the command center. Specification-wise, the barrier to entry for powertrain technologies is much lower than for ICE technology, where OEMs have traditionally held in-house expertise. BEV manufacturers often utilize the same suppliers for core components, resulting in less powertrain differentiation.

Product characteristics remain a key consideration for customers and OEMs must get them right to attract potential buyers. However, moving beyond a standard pure product-centric approach is worth exploring for companies seeking to make their value proposition more appealing, increase sales, and establish new revenue streams. Offering insurance or insurance-related services, such as personalized premiums based on driving data, or guaranteed residual value tied to insurance, could be a significant differentiator in the current competitive landscape.

¹ Over 140 brands sold at least 1,000 vehicles based on Marklines data.

Argument #2: OEMs possess superior data access compared to traditional insurers, enabling more accurate risk assessment.

Creating an insurance product that balances risk and cost ¬– and, crucially, encourages policyholders to minimize costs for insurers – is complex and requires transparent access to extensive data and accurate analysis. Even the most data-savvy insurance companies lack a complete picture of the risks. However, OEMs can bridge this gap.

More and more modern cars have embedded telematics, granting OEMs remote access to vehicle data. OEMs can increasingly modify vehicle behavior through OTA updates. In Thailand, 21% of all vehicles sold in the first half of 2024 had this capability. Within the BEV segment, this figure rises to over 90%. BEVs are also more likely to have ADAS features which can be modified through OTA updates.

Many modern vehicles have pre-installed cameras, enabling the collection of video data related to accidents or near misses. This data offers valuable insights into the causes of these events. Thanks to vehicle sensors, OEMs have access to unique driving behavior data, including braking frequency, acceleration patterns, lane keeping, and ADAS usage in various conditions. This granular data allows them to better understand how ADAS functions in real-world driving scenarios and make adjustments to ADAS that can be specific to a particular market.

Figure 2: Fitment rates of OTA and AEB in Thailand

Argument #3: The inevitable shift towards autonomous vehicles necessitates OEMs to begin better understanding liability and risk.

As vehicles become increasingly autonomous, the traditional driver-centric insurance model will become obsolete. The question of liability will shift from the driver to the vehicle's technology and its provider, i.e., OEM. Therefore, the stakes for OEMs will be much higher if they make incorrect decisions. Perhaps only when autonomous vehicles (AVs) offer a manual driving mode (that can be activated under specific conditions where the AV technology cannot operate, or at the driver’s will) will traditional driver-specific insurance remain relevant.

The transition to full autonomy will be gradual, with varying levels of automation being introduced over time. During this period, understanding the interplay between human driver actions and AV system behavior will be crucial. By analyzing local-level data on claim costs, risks, and technology behavior, OEMs can better design technologies that will accelerate the refinement of AV systems. While full autonomy may still be some years aways, preparing for this future is essential.

Recommendations for Insurance and Automotive Companies

Both insurance and automotive companies need to evolve their approach to remain competitive in the rapidly changing landscape, particularly as BEVs (which predominantly feature ADAS and car connectivity) become more prevalent in Southeast Asia. Two key strategic initiatives emerge as important priorities:

1. Develop joint insurance products.

Insurance and automotive companies should proactively pursue partnerships with each other to create better insurance products that leverage both parties' strengths. This collaboration could take a form of Pay How You Drive (PHYD) Insurance. By partnering with OEMs that have embedded telematics capabilities, insurers can offer more tailored pricing based on actual driving behavior rather than static factors. Key product features could include premium adjustments based on driving patterns, ADAS usage, and risk behaviors, rewards programs for safe driving habits and optimal ADAS utilization or customized risk profiles that account for specific vehicle features and capabilities.

These joint products would benefit from OEMs’ superior data access while allowing insurers to maintain their core competency in risk assessment and claims management. The resulting products could help address the current challenge of higher BEV insurance premiums while providing more accurate risk-based pricing. Successful examples of these products could give automotive OEMs a competitive edge. However, while there is significant potential, it will be crucial in these partnerships to clearly define each party's roles, responsibilities, and the business model to ensure mutual benefits.

2. Strengthen data and analytics capabilities.

The success of new insurance products, in particular those that may be built jointly with automotive companies, will increasingly rely on data collection and analysis skills that go beyond traditional insurance analytics capabilities. While many insurers have built data science teams, there are specific areas that require attention to fully capture the value of BEV-related data.

For example, insurers must establish secure, data pipelines with OEMs’ telematics systems, while maintaining data integrity during OTA updates and complying with data privacy regulations. Insurance companies will also need to build robust real-time data processing architecture capable of handling streaming sensor data from tens or hundreds of thousand vehicles. These systems should detect anomalies that indicate increased risk and generate regular risk scores while maintaining performance during peak traffic periods. In addition, insurance companies must stay current with rapidly evolving Large Language Models (LLMs) and computer vision technologies. While current LLMs have limitations in processing complex traffic scenarios, they show promise in categorizing and extracting insights from video content that could enhance risk assessment.

Both insurers and automotive companies will need to focus on attracting and retaining tech talent to advance these initiatives. This involves crafting a company brand that is attractive to tech professionals, emphasizing innovation and impactful projects.

3. Improve repair efficiency.

To fully understand the potential of co-created insurance products, automotive OEMs should also focus on optimizing the repair ecosystem. A critical level may lie in gaining greater control over repair processes and cost dynamics, which could enable more attractive customer offerings and capture additional margin. Several pathways can be explored, including investing in automation to reduce labor intensity, establishing specialized in-house body and paint facilities, leveraging data analytics to optimize the workshop network – ensuring optimal bay utilization while meeting customer expectations – and integrating repair-friendly design principles into vehicle development to a greater extent.

Conclusion

The rapid growth of vehicles equipped with new technologies in Southeast Asia, BEVs in particular, is reshaping both automotive and motor insurance industries. As with any major shift, there are challenges and opportunities. One such opportunity lies in building better insurance products by capturing new data and analyzing it using the latest data technologies. Those who embrace this approach have the potential to create a more distinctive value proposition and gain a competitive edge.

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