Motor insurance premiums have risen faster than inflation, reaching more than $1050 per year, a 42 per cent jump in the last five years a key industry report has found
The Insurance Council of Australia’s Motor Insurance Policy Paper: A Roadmap for Reducing Rising Premiums says the increase is roughly the same as the claims increase and wants the government to tackle the skills shortage in the collision industry to help ease this pressure.
According to the report, the average cost of a comprehensive motor insurance policy has increased by 42.35 per cent since 2019, reaching $1,052 per year in 2024 while average claims costs rose 42.2 per cent since 2019-2024 outpacing inflation.
The average claim was $3,658 in June 2019 but jumped to $5,202 by June 2024 – double the rate of inflation, and the report estimates 11 cents was added to a premium price for every extra dollar the average claim rose.
The ICA report highlighted higher costs of vehicle replacement, parts, and labour as well as increasing complexity of vehicle technology. Insurers are investing in streamlined repair processes and partnerships with repair networks to control costs.
Premiums going up, not value
It also seeks to explain this to consumers in terms of resale value.
“The key is that the primary driver of insurance costs is repair expenses—not the resale value of the vehicle. Even if your car’s market value is lower than before, parts and labour costs often keep rising. Most claims involve repairs rather than total replacements, so insurers must charge premiums that reflect escalating costs for parts, labour, and related services,’ the report says.
It quotes the AMA Group financial reports to show the average repair cost rose from $2,914 in Q1 2022 to $3,662 in FY2024, representing a 25.6 per cent increase over three years.
“The underlying cost pressures is attributable to rising cost of labour, increasing cost of parts as well as increasing complexity of motor vehicle repairs, driven by new technologies,” it notes.
Labour a major factor
The report also cites ABS data to show the rising costs of labour, with automotive electricians rising almost 55 per cent in five years.
Total write offs and fraud were also factors driving up costs with the former rising 20 per cent since 2019, while fraud cost the industry $560 million in 2023 alone.
It also noted inflated towing and storage costs, partly caused by regulatory gaps, in Queensland and Western Australia have also led to inflated claims costs.
“The rise of credit hire/accident management companies (CHC/AMCs) has led to inflated claims, litigation costs. Separately, fraudulent activities such as staged accidents and multiple simultaneous insurance claims for the same vehicle, cost the industry $560 million in detected fraud in 2023. Insurers have ramped up fraud detection capabilities, data-sharing initiatives, and consumer awareness campaigns to combat fraudulent activities, “ the report noted.
Action needed
The ICA report has also outlined a number of skills based and regulatory options for government that target these specific areas, which they argue would reduce the total claims cost and take the pressure off premiums.
Addressing the skills shortage
The report highlighted the work the insurance industry currently does to help the vital flow of new recruits including the sponsorship of the ‘Future Leaders of the Industry’ that appears in this magazine to recognise and continue support and development for young people, along with sponsorship of the Australian Collision Industry Alliance to promote careers in the collision repair industry.
But it also noted the MTAA figures that collision repair businesses filled only 26 per cent of panelbeater vacancies and 29 per cent of vehicle painter vacancies.
“These shortages underscore an urgent need for government action particularly in the areas of skilled migration and national skills training policy,” it said.
The ICA wants government to expand skilled migration pathways and training for panel beaters, mechanics, and vehicle painters to meet this need.
Several steps it outlines include allowing motor trades associations and educational institutions like TAFE to conduct skills assessments, reducing bottlenecks in Trades Recognition Australia.
It recommends temporarily lowering or waive the Skilling Australians Fund (SAF) levies for key motor trades to ease financial burdens on employers, especially small businesses along with lifting restrictions preventing 482 visa holders in certain trades from working in non-regional areas to allocate resources where needed.
For locally grown talent the report wants an extension and expansion of support programs such as Queensland’s Fee-Free TAFE EV skills program and the Federal Government’s new energy apprentice payment of $10,000 for training to help boost course completion.
It argues the support is necessary to reverse the figure that only 58.1 per cent of apprentices in automotive trades complete the full four years for qualification and help build the pipeline of staff for a future industry.
Other recommendations in the ICA report.
Freeing up the supply of parts
While the Motor Vehicle Information Scheme (MVIS) created in 2022 requires motor manufacturers to make service and repair information available to independent repairers, addressing anti-competitive behaviour, it does not include parts
To overcome restrictions to parts for independent repairs the report recommends extending it to parts, similar to the legislated access to repair information that could have the benefit of potentially driving down repair costs, and ensure independent repairers have the access to necessary parts to perform repairs efficiently and effectively,
The report also recommends recognise the automotive sector in Federal Government supply chain resilience initiatives, so that the manufacturing industry .
Regulate credit hire and accident management companies
- Implement consumer protections against misleading advertising and inflated costs.
- Strengthen oversight to curb excessive legal and hire car charges.
Regulate Towing and Storage Fees
- Support Queensland regulatory reforms to cap storage fees and secondary towing costs.
- Ensure effective enforcement and eventual expansion of Western Australia’s Towing Services Bill 2024.
Combat Insurance Fraud
- Enhance insurer-law enforcement collaboration to target organised fraud networks.
- Strengthen fraud detection and prevention initiatives across the industry.
Reform Written-Off Vehicle Rules
- Amend New South Wales regulations to enable repairable total loss vehicles to be re-registered after stringent safety inspections, to align approach with other states to improve salvage recovery values and reduce claims costs.
Read the full report here