Why Are Car Insurance Prices Skyrocketing in Australia?

If you’ve noticed your car insurance premiums rising significantly over the past few years, you’re not alone. A recent study commissioned by the Insurance Council of Australia (ICA) has shed light on the factors driving up costs, and it’s not just about insurers chasing bigger profits.

The Rising Cost of Car Insurance

According to the ICA’s findings, comprehensive car insurance premiums have surged by 42.35% between June 2019 and June 2024, reaching an average of $1052 per year. The study attributes these increases to the rising cost of repairs, a shortage of skilled workers, and the complexity of modern vehicles.

Are Insurance Companies to Blame?

While many believe insurers are simply increasing prices to boost profits, the report argues otherwise. It points out that profit margins in the industry have actually declined, with the net combined ratio (NCR)—which measures total costs versus total premiums—rising from 89% to 94% over the five-year period.

Why Are Insurance Premiums Increasing?

1. Rising Repair Costs

One of the biggest contributors to higher premiums is the increasing cost of vehicle repairs. The study highlights that the average repair cost has jumped from $3658 in 2019 to $5202 in 2024, a 42.2% increase. This is due to:

• The use of advanced driver assistance systems (ADAS), such as autonomous emergency braking (AEB) and adaptive cruise control, which make repairs more expensive.
• The growing presence of electric vehicles (EVs), which require specialized parts and highly skilled technicians.
• Inflation and a skills shortage in the automotive repair industry, leading to higher wages for panel beaters, automotive electricians, and vehicle painters.

2. Total Loss Claims Are Increasing

In New South Wales, total loss claims have jumped by 20%, partly due to lower salvage recovery values. This means that when a car is written off, insurers are recouping less money from selling damaged vehicles, further driving up costs.

3. Longer Repair Times

Car repairs are also taking significantly longer. The average repair time has increased from 38.57 days in 2019 to 61.25 days in 2024, a 58.06% rise. Parts shortages and a stretched repair workforce mean insurance companies must cover rental car costs for longer periods, further increasing premiums.

4. More Expensive Car Parts

The cost of vehicle parts and accessories has risen by 25.9% over the past five years, due in large part to the complexity of modern cars. Even a minor front-end collision can cost thousands to repair because of sensitive sensors and expensive calibrations.

5. Fraudulent Claims

The study also highlights the increasing number of fraudulent claims, which require insurers to spend more on investigations and legal costs. These additional expenses are ultimately passed on to consumers.

Why Are Insurance Prices Rising Even Though Car Values Are Falling?

One common question drivers have is why insurance premiums continue to increase when their car’s market value is decreasing. The report clarifies that repair costs, not resale value, drive insurance pricing. Even if your car is worth less than before, the cost to fix it keeps rising—meaning insurers must adjust premiums accordingly.

Which States Have the Most Expensive Insurance?

The cost of car insurance varies across Australia, with New South Wales, Victoria, the Northern Territory, and the ACT paying above the national average. Meanwhile, drivers in Queensland, South Australia, Tasmania, and Western Australia generally pay less.

Here’s a comparison of average annual premiums:

• NSW: $1176
• Tasmania: $757
• Difference: $419

What Can Be Done to Lower Insurance Costs?

The study outlines several key recommendations to help curb rising insurance premiums:

1. Address the skills shortage in the motor trades sector to reduce labour costs.
2. Strengthen the automotive supply chain to avoid parts shortages and delays.
3. Enforce stricter regulations on car manufacturers to ensure spare parts are more readily available.

The Bottom Line

Car insurance premiums are increasing due to a combination of higher repair costs, longer repair times, more expensive vehicle parts, and a shortage of skilled workers—not simply because insurers want to make more money. While these challenges are unlikely to disappear overnight, addressing the skills shortage and improving access to parts could help stabilise prices in the future.

If you’re looking to save on insurance, consider shopping around, increasing your excess, or bundling policies to secure discounts.

Ensure you search the Tynan stock through our link here.

Credit: Drive.com.au