Battery electric buses: What insurers need to know now

About this WTW insurance market insight

This insight aims to provide insurers with perspectives to help clarify the challenges, as well as the risk mitigating measures and best practice developing, as more bus operators move their fleets to battery-powered electric buses. It focuses primarily on buses powered by battery packs only capable of being recharged for operational duties at fixed locations, such as operating bases or depots. We use the term battery electric vehicle (BEV) to differentiate from other forms of propulsion technology.

Below, we consider the existing technologies and the developments around factors such as vehicle design, telemetry and bus depot configurations. We also look at the proactive and collaborative board-level moves by BEV operators and their stakeholders that are driving increasingly refined approaches to effective risk management in this growing area.

Specifically, we examine:

• What is leading the switch to BEVs?
• Why are BEVs more expensive to purchase?
• What is driving insurer concern over BEVs?
• How are BEV risks being managed?
• Next steps for insurers and stakeholders on managing BEV risks.

What is leading the switch to BEVs?

A BEV powered solely by a rechargeable battery pack is a zero emissions vehicle, meaning many operators are adopting this technology to support their commitment to the transition to net zero.

The U.K. Government has said local transport authorities should work with bus operators, including through Bus Service Improvement Plans (BSIPs), to develop programmes to decarbonise their bus fleets.¹ Though now closed, the most recent U.K. Government funding scheme, the Zero Emission Bus Regional Areas (ZEBRA), provided funding for up to 75% of the cost difference between a zero emissions bus and an equivalent conventional diesel bus, and 75% of the capital expenditure incurred as a result of purchase and installation of infrastructure. A total of £270 million of funding was awarded via the ZEBRA scheme between 2021 to 2022.²

However, it’s worth noting, there have been no grants for expanding or developing new sites to recharge, store and sufficiently space BEVs to reduce the risk of fire spread, more on which below.

Why are BEVs more expensive to purchase?

We estimate the cost of a BEV, as opposed to an internal combustion engine (ICE)-powered bus is between 30-50% greater. Currently, we do not expect the cost of BEVs to reduce, as BEVs become the norm and ICE buses cease to be produced.

While the driveline of a BEV contains fewer moving parts than a conventional ICE bus, their higher manufacturing costs are in part related to a more sophisticated driveline system. Drivelines comprise of either a single electric motor driving a conventional differential arrangement, or electric motors mounted in each driving wheel hub with differential characteristics controlled electronically, known as an ‘electric axle’.

Traction power is supplied from a battery pack fitted in the bus, incorporating several systems to monitor its charge, temperature, operation, and discharge state. In the case of a bus battery pack, this data is logged and transmitted using telemetry. Incorporating these systems is another factor contributing to the price of the BEV.

Finally, new manufacturing and assembly processes, plus increases in the costs of key components, such as battery packs, electronic components, and drive motors, also add to higher overall cost of purchase.

What is driving insurer concern over BEVs?

The greatest factor here is the risk of BEVs being involved in fire incidents resulting in a significant static/property damage loss. While we would argue the frequency or occurrence of BEV fires is currently lower than wider perceptions, the level of severity of the relatively few incidents seen is higher when compared to fires involving ICE buses.

At WTW we are aware of fire incidents involving BEVs globally. However, while information is not always complete on such incidents, we would argue for some incidents reported in the media as BEV fires, a BEV was not necessarily the root cause.

The ensuing losses from fires involving BEVs are potentially greater than with fire incidents involving ICE buses, as the electrical components on the vehicle, in particular the battery pack, once ignited, can explode. This distributes the fire over a greater area than might have been experienced if an ICE-equipped vehicle were to catch fire. The volume and ferocity of the potential explosion when the battery pack moves into the thermal runaway phase and the consequent distribution of ignited items, including individual battery cells, means emergency services can face additional challenges in fighting a blaze involving a BEV.

Broadly speaking, the risk of fire spread depends on parking facilities and depot-specific layouts. The traditional style of large, enclosed garage spaces presents the most significant risk due to the close parking of vehicles, meaning operators need to consider depot design carefully to support fire risk mitigation when introducing BEVs at these types of depots.

So, the insurer's perception is that fires including BEVs present a more significant risk and consequently a greater magnitude of claim to resolve due to the increased cost of vehicles and losses to infrastructure.

How are BEV risks being managed?

We argue it is vital insurers look beyond any headlines to gain a thorough understanding of BEV risks and the work the sector is undertaking to effectively manage risk. Getting a clearer perspective means looking at the risks in their fullest context, and having a deeper appreciation of the risk controls being implemented at every stage of BEV deployment, from vehicle manufacturer to effective strategic planning. To this end, focus is being placed by the industry in the following areas:

• Vehicle and component manufacturers, operators and insurers are participating in open forums where they share knowledge, insight, and best practice, demonstrating an awareness of risk and the ambition to implement controls across the sector
• Vehicle manufacturers investing in technological advancements that support continually improved safety, ensuring operators are able to take advantage of developments
• Component manufacturers advancing both energy storage capability and safety, developing battery packs that incorporate appropriate materials of construction such as phosphate, which is said to reduce the likelihood of thermal runaway
• Vehicle manufacturers and infrastructure providers working together to develop and implement appropriate methods of managing and controlling battery pack temperature
• Operators establishing effective charging and monitoring technology at their premises to accurately log and monitor data, harvesting this to build operational understandings of how vehicles respond to charging, and to compare specific vehicle charging characteristics with others, and with expected parameters. This operational data is fed back to manufacturers
• Defining processes should vehicles exhibit unexpected characteristics whilst at charging at the depot, including isolation areas where they can be safely inspected away from the rest of the fleet, with the safety of staff being of paramount importance. Operators are implementing this approach with defined processes, including clearance of a defined area around a vehicle
• Operators and manufacturers working collaboratively to inform and continually train drivers and upskill technicians via recognised industry training and accreditation. Training is in place with appropriate staff either having undertaken or being identified to receive training, particularly in the inspection and safe isolation of BEVs
• Operators utilising additional vehicle inspection methods using thermal imaging technology to identify ‘hot spots’ in vehicle electrical systems, drivelines, battery packs, cabling and cabling connections. Operators are implementing this technology across their entire fleets of both BEVs and ICE-equipped vehicles
• Operators defining, managing, and testing effective business recovery plans, involving key stakeholders such as the emergency services, technical specialists, as well as insurers, in this important process. WTW continues to utilise our insight to provide support.

Next steps for insurers and stakeholders on managing BEV risks

The new emerging risks associated with BEVs are already being managed by operators and manufacturers. Together with insurers, they need to continue to view BEVs with a fresh perspective, and not apply the same expectations and protocols as they might for ICE bus risks.

Switching to an electric fleet is not as straightforward as replacing ICE buses with the same number of BEVs. Operators are supporting the provision of information informing insurers in more detail than ever before about depot layouts and locations, and their short and medium-term planning around the specific risks with a view to continuous improvement. It is essential to demonstrate increasing awareness of how the risks are being effectively managed, articulating this information effectively to insurers.

WTW is keen to facilitate manufacturers and operators continuing to work together to help prevent insurers stipulating potentially prohibitive premium increases, wider-ranging caveats, or refusal to cover these risks, which would have a detrimental impact on operators, passengers, local authorities striving to meet net zero transition commitments and, ultimately, the environment.

We conclude it is essential the work being done to ensure risk controls and other measures are effectively documented and that every element of risk control is articulated clearly, so insurers can have an accurate understanding of the effectiveness of risk management.

WTW is committed to continuing to support organisations in communicating to insurers what work is being done.

Given both the environmental and consumer shifts – with more passengers switching from ‘ownership’ to ‘ridership’ of transport – by working more closely with BEV operators, risk specialists and manufacturers, insurers have an opportunity to ensure they are not excluded from the growth in this increasingly important area of transport by viewing risk management favourably.

Get in touch to be part of our next BEV risk forum.