糖心原创

The Carney government is on a mission to electrify Canadian roads. In January, the Prime Minister inked a deal with China allowing 49,000 EVs into the country under a tariff of about 6 percent, down from more than 100 percent. (In exchange, China agreed to lower tariffs on Canadian canola.) Carney said he expects the annual quota of Chinese vehicles coming to Canada to rise to 70,000 cars over the next five years.

In February, Carney eliminated his predecessor’s decree that all new passenger cars sold in Canada must be electric by the year 2035, and shifted the focus to reducing greenhouse gas emissions; the goal is to cut them in half by 2035. Of course, EVs play a big role in achieving this target, and the prime minister has introduced tax incentives for companies that manufacture electric vehicles in Canada while also committing $1.5 billion to build the requisite charging infrastructure. He has brought back a time-limited rebate program that will put $5,000 in the pockets of those who purchase zero-emission cars and give $2,500 to those who buy hybrids. Only cars made in Canada or in countries with which Canada has a free-trade agreement are subject to the rebate.

The hope is that Canada will reach an adoption rate of 75 percent of new vehicles being electric by 2035, and 90 percent by 2040. What does all of this mean for insurers? What are some of the new risks insurers need to be aware of as the automotive industry as Canada pivots to EVs?

The batteries that power EVs come with a host of risks related to their safe storage, repair, charging and disposal; understanding these risks is critical to a successful and ongoing transition to electrification. Currently, many EV batteries are lithium-ion, which have been widely reported to be flammable when damaged or improperly operated. There have been stories about batteries catching fire following a collision and even while charging. These incidents are rare, but when they do occur, the fires are very difficult and dangerous to extinguish, requiring thousands of gallons of water. Transport Canada and other sources have warned that compromised or 鈥渁ftermarket鈥� batteries are more likely to pose a fire risk.

This is one of the reasons that it鈥檚 key for insurers to be aware of and confident in the provenance and health of the batteries they are underwriting. 鈥淪upply chain becomes an important piece of looking at the complete risk of an EV,鈥� says Clinton D鈥橲ouza, Senior Analyst Transformation at Sompo. In the event of a damage claim, an insurer should be aware of 鈥渉ow long it鈥檚 going to take to get the parts, where they鈥檙e being stored, and where they鈥檙e coming from,鈥� D鈥橲ouza notes. 鈥淵ou鈥檙e going to have a lot of third-party companies supplying the manufacturers with those parts, so you want to know whether those third-party companies have their own insurance in place.鈥�

EV batteries contain toxic materials such as lithium, cobalt, nickel and manganese. In Canada, where these batteries are already reaching EoL, or 鈥渆nd of life,鈥� there are no regulations for their disposal. Neither is there any data being collected that tracks their disposal or any clarity as to who is responsible for the batteries at EoL. The same is largely true in the U.S. 鈥淚t really is a black hole,鈥� says Mark Winfield, Professor of Environmental and Urban Change at York University. 鈥淚n their enthusiasm to promote the adoption of EVs, North American governments seem to have taken this complete hands-off attitude,鈥� he says.

Meanwhile, efforts in Canada to start battery recycling businesses have fallen flat. The Canadian startup Li-Cycle, which shredded batteries and sifted through the remains to produce something called 鈥渂lack mass鈥� that could then be mined for critical minerals, filed for bankruptcy last year. The CBC reported that experts see the failure to establish a viable battery-recycling industry as a reflection of the need for government intervention through regulation, standards and incentives. The shuttering of Li-Cycle and absence of other recycling efforts in Canada marks a lost opportunity to recover critical materials from the batteries and thereby reduce the need for further extraction, which seems to defeat one of the central purposes of EVs鈥攖o try and help protect the environment.

The lack of clear protocols around the tracking and disposal of batteries leaves open questions about possible adverse effects on human health. Winfield co-authored a 2023 study comparing regulatory regimes for managing EoL EV. Researchers asked the Ontario government, for example, about the treatment of what is very likely hazardous waste from EV batteries and whether any records are being kept of where this waste ends up. 鈥淭he answer on all fronts is no,鈥� says Winfield.

This lack of regulation 鈥渋s in complete contrast to the European Union,鈥� says Winfield, who co-authored a 2023 study comparing regulatory regimes for managing EoL EV batteries. The broader regulation regime in the EU includes 鈥渋nfrastructure for what they call a battery passport,鈥� a system which Winfield describes as a 鈥渃radle to-grave tracking鈥� of a battery. 鈥淪o even if it moves to a different vehicle, to different applications, we know when it was made, who made it, what its condition was,鈥� he says. The EU鈥檚 regulations make clear that it鈥檚 on OEMs, the original equipment manufacturers of EV batteries, to ensure they are appropriately recycled and disposed of.

Interestingly, OEMs might actually want to retain control of EV batteries because of the possibility that when a vehicle is parked, its battery could be used as what is called a 鈥済rid asset.鈥� In other words, the OEM could sell electricity from the battery into the grid, or possibly provide the grid with storage for excess electricity through the charging of batteries. The technology to make this happen is still being developed, and in Canada, 鈥渨e haven鈥檛 really figured out how the vehicle-to-grid relationship would work,鈥� says Winfield. He notes that there is a currently lot of research being undertaken about to put this in action, both technically and in terms of business and regulatory models.

In the meantime, it remains unclear who actually owns the batteries in electric vehicles in Canada, and who is liable for them. Winfield speculates that the battery passports being used in the EU would be very useful for insurers, as they provide a 鈥渃hain of custody鈥� for each EV battery, 鈥渁 record all the way through the life cycle of what鈥檚 happened鈥� to them.

In fact, any data about the various components and technologies of EVs would be helpful to insurers. The cars require specialized parts, many of which come from outside the country, and fixing them requires technical expertise. There is more research to be done about the type of damage they typically incur, and how much it costs to repair them. 鈥淭here鈥檚 not enough information on EVs from a claims perspective,鈥� says D鈥橲ouza. 鈥淧ricing is all over the place right now.鈥�

And as cars from China start entering the market, there will be added confusion, because these vehicles are built and function differently than the by-now more familiar Teslas. 鈥淚t鈥檚 going to be difficult for an insurer, unless they have a good base or good volume, to know how to rate a car,鈥� D鈥橲ouza says. Eventually, more information will be available through the Insurance Bureau of Canada鈥檚 CLEAR system, which helps insurers gauge the cost of claims against specific vehicles. Until that database builds up, multinational insurers in Canada may have access to information from their counterparts in other countries, D鈥橲ouza says, but for Canadian-licensed companies it will be more challenging, at least in the short term, to get a benchmark on EV claims against Canadian performance.

And there are limits to the wisdom of other markets, cautions Dan Elliott, Field Chief Information Security Officer (Field CISO), for Recorded Future, who is based in Sydney. For example, Australia, Singapore, and parts of Europe may have experience with Chinese EVs that won鈥檛 graft directly on to how the same cars will perform in Canada. Think climate, temperature, and environment. Think about those trains, says Elliott, that were built in France, tested in Europe, and then brought to minus-25-degree winters in Ottawa. 鈥淭here were multiple instances where doors wouldn鈥檛 close, where vehicles wouldn鈥檛 run on the track,鈥� Elliott says. There are certain to be similarly unexpected wrinkles when compact Chinese EVs meet the Canadian winter, and it鈥檚 yet to be seen how these differences will play out for insurers.

In Australia, where people wait for months for Teslas and where Chinese EVs are increasingly ubiquitous, the government is in a hurry to catch up and build the required charging infrastructure, says Elliott. But these public charging stations have been a locus of concern. Might they present an opportunity for nefarious actors to hack into electric vehicles?

鈥淚s it possible?鈥� muses Elliott. 鈥淚t really depends on how that charging point is connected to the central processing unit, that brain inside the computer.鈥� He mentions that a few companies in Australia have been looking specifically at cyber risk for fleets of electric trucks and charging stations. EVs and charging security is recognized as an area of concern, Elliott notes, though he is not aware of any public evidence showing the charging station or platform as a major current attack path. 鈥淔rom a vehicle vulnerability standpoint,鈥� he points out, 鈥渋t鈥檚 much more likely the vehicle itself will be hacked.鈥�

That鈥檚 true of any car with a connection to the internet. In 2015, Wired did an experiment in which hackers took over a Jeep Cherokee being driven by one of the magazine鈥檚 writers (who was a willing participant). The hackers manipulated the vehicle鈥檚 air conditioning, blasted its radio, turned on the windshield wipers, and beamed their own faces onto the dashboard. Then they cut the car鈥檚 transmission, even as it sped along the highway. At that point, the writer admitted, 鈥淭he experiment had ceased to be fun.鈥�

But while this risk has been around for some time, it is compounded by the increasing ways we tie our vehicles to the internet. 鈥淎s we see more connectivity, like using your phone to start your car, you and whoever else is in your vehicle are potentially vulnerable,鈥� says Greg Markell, president and CEO of Ridge Canada Cyber Solutions, a managing general agent that focuses on specialty insurance with a core pillar of cyber security. Markell points out that many different makes of cars come with apps through which you can operate the vehicle remotely. Markell emphasizes that awareness of existing risk is essential. 鈥淪ecurity starts at home,鈥� he says. 鈥淚 think we should be concerned about it on an overall personal level.鈥�

But with the new agreement between Canada and China, anxiety has surfaced about EVs being hacked for political reasons, in service of state espionage. Might cars from China arrive with 鈥渂ack doors鈥� installed in them that provide access to sensitive information, whether about us or our governments?

As part of his deal to import Chinese EVs on a reduced tariff, Carney stipulated that a portion of the cars would cost $35,000 or less, making them more affordable and appealing to consumers; by 2030, half of the annual quota is to be in that price range. The popular Chinese EV brand BYD makes a compact car called the Dolphin that retails for less than $30,000. BYD has already registered its passenger car factories with Transport Canada鈥檚 Appendix G Pre-clearance Program, having applied in the past to sell taxis and buses in Canada. In February, the CBC reported on a Leger poll that found 61 percent of Canadians were in favour of Chinese EVs coming to Canada. Thirty-three percent of those polled said they worried about the privacy and security of these cars; a great proportion of people mentioned 鈥渧ehicle quality鈥� and 鈥渋mpacts on the Canadian auto industry鈥� as concerns鈥攊n both cases, 38 percent.

The doors in Canada were open to Chinese-manufactured vehicles as of March 1; it鈥檚 been speculated that the first tranche to arrive would be from brands such as Volvo, Polestar and Tesla, which are also made in China, because the approval process for Chinese-branded cars would take more time. Still, we鈥檙e certain to eventually start seeing those Chinese-branded cars on our streets and highways, and possibly even on our commercial carlots; the Globe and Mail recently cited an industry source who said that 鈥淏YD wants to establish 20 dealerships within a year, starting in the Toronto area, followed by Vancouver, Montreal and Calgary.鈥�

That鈥檚 already happened in Australia, where Elliott says the big questions right now are about 鈥渟ecure design, how you maintain the integrity of the vehicle updates, and how you deal with vulnerability disclosures on those vehicles.鈥� These cars, he notes, 鈥渁re essentially driving computers being updated by the manufacturer.鈥� In connected vehicles, he says, software update governance is likely to sit offshore with the manufacture, rather than in Canada.

Elliott thinks Canada鈥檚 Motor Vehicle Safety Regulations do a good job of addressing vehicle and road safety standards with respect to EVs. And while cars from China may present some new challenges technology-wise, roughly the same road and vehicle safety rules can be applied to them as are to other EVs. The regulations are also being updated; recently, it was announced that the rules would be changed to allow updated vehicle immobilizer systems in EVs, which help prevent theft.

What has not yet been dealt with, in Australia or here in Canada, Elliott says, 鈥渋s how to deal with the data. How do we address the sovereignty of data? Is it owned by the citizen who鈥檚 driving the vehicle? Is it owned by the manufacturer? Where does that line blur?鈥� Elliott says Australia is a bit late in tackling these questions, with Chinese EVs having already landed. 鈥淚t鈥檚 very difficult to roll things back,鈥� he says.

The question of whether an EV can 鈥渟py鈥� on its driver might call to mind the Canadian government鈥檚 decision four years ago to officially ban the Chinese telecommunications firm Huawei from this country鈥檚 5G network, for reasons of national security. 鈥淗ow far off is a Chinese-made computer with wheels from a Chinese-made telecommunication device and the associated network?鈥� asks Elliott. 鈥淗ow do you deal with the amount of data that is sent back and forth, and the risk that provides from a sense of data residency, the foreign vendor risk, and also strategic coercion and sovereign cloud?鈥�

He points to a recent Australian news story about employees in Sydney of the Chinese-owned food delivery company HungryPanda discussing labour grievances over WeChat, after which some of their family members in China were threatened with arrest. It is sobering to consider 鈥渢hat level of state engagement with what鈥檚 happening abroad鈥� coupled with 鈥渢he ability for location data of vehicles to be known to the Chinese government because of the way data sovereignty and data sharing laws work in China,鈥� Elliott says. Because, as he points out, 鈥渋n Canada, there are very strict requirements if the Canadian government wishes access to data held by a Canadian company. Whereas in China, it鈥檚 a demand, a 鈥榯hou shalt.鈥欌��

He suggests a hypothetical scenario in which an employee of the government of Canada owns an EV made by a Chinese-owned company. 鈥淚f you鈥檙e driving on to a government site or a training facility or a military facility, at what point are you still allowed to drive your personal vehicle there?鈥� says Elliott. 鈥淭hese are all questions that Australia is trying to figure out.鈥�

Greg Markell points out that geopolitical risk, including as it plays out through incoming electric vehicles, is not limited to a single country. He says Canada is overdue for an update to its privacy legislation and that governments should be setting clear security standards for imported cars. He wonders what, if any, inspection will take place when the BYDs and other Chinese-branded cars make their entrance. 鈥淎re we retrofitting all of these Chinese vehicles?鈥� he asks. 鈥淥r are we just taking them off the ship and selling them on lots?鈥� On the question of whether there is more exposure from a geopolitical standpoint as it relates to 49,000 Chinese EVs coming into Canada, Markell says, 鈥淢aybe. I鈥檇 be curious to see if any politicians are getting into them.鈥�

In Australia, says Elliott, the term 鈥渞olling security risk鈥� is being used to refer to Chinese-made connected vehicles; they鈥檙e learning as they go how best to mitigate it. There鈥檚 no escaping the fact that geopolitical risk exists, and governments have no choice but to address it. 鈥淔rom an insurability standpoint, it will be up to underwriters to say, Well, do we see that as risk, or is that not an insurable risk?鈥� says Elliott. Insurers will have to decide what they鈥檙e willing to own, and what risk they think can be mitigated. The good news, says Elliott, is that these kinds of calculations are 鈥渟omething insurance companies do much better than a lot of other industries.鈥�