TREND 4
Transition risks present new ways to segment business

Recent Changes in the Garage

Insurers historically evaluate risks at a point in time, examining various factors at the moment of underwriting. While some historical information is used, such as claim history and coverage history, recent changes in risk are typically not evaluated.

These types of changes, or transition risks, may be opportunities to help improve risk segmentation. Examples of transition risks include driving an electric vehicle (EV) for the first time, moving to a densely populated area for the first time, moving to a new state, or driving a large vehicle for the first time.

EV adoption continues to gain traction in the U.S. In 2024, 1.57 million EVs were sold in the U.S., an 8.9% increase over 2023. This percentage is higher than the 2.6% growth of all light-duty vehicles (LDTVs), which include all cars, vans, SUVs and light-duty pickup trucks that weigh 8,500 pounds or less in the same time period.¹

The total number of EVs insured in the U.S. grew by 40% to 5.6 million in 2024, which is much higher than the 1.8% growth of the total number of private passenger autos (PPAs) insured in the same period.

In 2024,

1.57 million

EVs were sold in the U.S., an

8.9%

increase over 2023.

_{¹Argonne National Laboratory}

Transition to EVs Can Incur Higher Risk

Let’s look at the impact of EVs within the auto insurance sector. By the end of 2024, EVs made up 2.1% of the total number of PPAs in the U.S. While still a small percentage of the total number of vehicles, the number of claims for EVs and the amount of paid claims for EVs is slightly higher than the number of EVs on the road.

In 2024, the number of paid EV claims was 2.4% of the total number of paid PPA claims. The total amount of payment to EV claims was 3.1% of the total amount of payment to PPA claims.

When comparable households replace their old vehicles with new EVs rather than new internal combustion engine (ICE) vehicles, they incur 31% higher claim loss cost due to 14% higher claim frequency and 15% higher claim severity. Loss costs for Collision were particularly high, with a 20% higher frequency and 30% higher severity.

_{Source: LexisNexis® Risk Solutions internal data, 2025}

Learning Curves Can Lead to Transition Risk

When drivers purchase a new vehicle, many can experience learning curves as they adapt to the differences in their new vehicles. These learning curves can lead to initial upticks then gradual declines of claims frequencies.

The distinct driving experience of EVs leads to an even larger learning curve with a higher initial increase and steeper subsequent decrease in claim frequencies.

Transition risks are not unique to EVs, they also exist when drivers transition from small sedans to big pickup trucks or other large vehicles. U.S. auto insurers need to better understand the risks associated with recent changes in households, drivers or vehicles. Insurers who proactively account for such transition risk in their underwriting and pricing practices can be in a stronger position to achieve better underwriting profitability.

U.S. auto insurers need to better understand the risks associated with recent changes in households, drivers or vehicles.