Out of charge: Do insurers and lenders hold the key to the mass adoption of electric vehicles?

October 21, 2021 | Aaron Atcheson, Kelsey Vicary, Kyle Bertsch

In an effort to reach its stated goal of net-zero emissions across the country, the Government of Canada has plans to implement a ban on the sale of all gasoline-powered vehicles by 2035. In response, certain Ontario automotive assembly plants, such as CAMI in Woodstock, Ontario, are being retrofitted to begin manufacturing electric vehicles (EVs). However, there are concerns that Canada is not ready for the mass adoption of EVs. Significant upgrades are needed to EV infrastructure, from chargers to local distribution capacity. Specifically, with respect to charging infrastructure, it is possible that the conservative nature of lenders and insurers may affect the speed and manner of expanding these capabilities across Canadian jurisdictions.

There are a variety of reasons to install EV charging infrastructure.  For homeowners that purchase an EV, the need is clear.  But other parties are also installing EV chargers, from hotels, restaurants, retailers and even municipalities looking to attract customers or shoppers, to commercial vehicle charging providers seeking to make a profit from charging vehicles. With charging times anywhere from minutes to hours for a full charge, convenience is a particular concern, whether at home or out in the world. Although there are higher capacity ‘superchargers’ available in the market, this equipment can cost users as much as $60,000 for home installation.  Commercial units with high frequency of use expectations will cost considerably more.

From a regulatory perspective, provincial regulators, such as the Ontario Energy Board, have generally determined that restrictions associated with distributing and selling power do not apply to EV chargers.[1] While there are still regulatory requirements related to electricity infrastructure generally, this leaves EV chargers largely within a regulatory gap, until provinces or municipalities establish an appropriate licensing regime. As happens in various markets where a regulatory environment is incomplete, lenders and insurers consider risks and outcomes, and err on the side of safety and loss minimization.

What does this mean in practice? Questions have arisen over whether an EV charger becomes part of the building it is attached to once affixed, or whether it might even remain “part of the vehicle” similar to a spare tire or jack.  How these questions are answered will dictate who needs to insure the risk, under what policy, and whether special coverage and coverage requirements are needed. Lenders and commercial retailers will want to be certain that insurance has been placed appropriately, and they need to understand how to ensure they do not take on inappropriate risk. For example, a commercial retailer may require an assignment of insurance along with other guarantees, indemnities, or sublease arrangements where third-party EV chargers are installed in commercial spaces. Auto finance companies will have to determine whether they will retain ownership of the charging equipment as collateral or if they will require the vehicle owner to purchase the equipment outright and at what cost. Parties may have liability or coverage concerns regarding EV charging stations that malfunction and result in property damage. In all cases, lenders and insurers will act as gatekeepers to market participation in the EV charging space.

Risk averse lenders and insurers are by no means the most significant inhibiting factor to the widespread use of EVs in communities in Ontario.  Limits on the capacity of our distribution system can mean that multiple ‘supercharging’ units on a residential block could result in area brownouts. Remote communities may not have the capacity to charge an EV at a reasonable speed without storing power from low use periods, requiring the addition of battery units to EV chargers.  But until a more robust regulatory environment exists, gaps in regulations and standards will result in insurers and lenders dictating expectations to minimize liability. It is likely that the Courts will need to be involved in adapting decisions on fuel vehicles and fuelling infrastructure, not to mention other automotive accessories.  Until rules at various levels are applied to EVs and EV infrastructure, insurer and lender conservatism towards EV adoption will continue.  And before we get comfortable with these issues, hydrogen and other adaptations to vehicles will be upon us – expect lots of movement in this area for years to come!

[1] Ontario Energy Board, Bulletin, “Electric Vehicle Charging” (7 July 2016), online: www.oeb.ca/industry/rules-codes-and-requirements/staff-bulletins-and-guidance-industry.


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