Time to read : 6 Minutes
Did your last car insurance renewal hurt? If it felt unusually high, then join the club.
The Insurance Council of Australia (ICA) says that the average cost of car insurance premiums has jumped a massive 42.4% since 2019, and last year Aussies were paying an average of $1,052 to keep vehicles covered.
So what's driving up the cost of car insurance? It's easy to point the finger at insurers looking to ramp up their profits, but there are a number of factors at play.
A quick recap on what car insurance covers
Australia has compulsory third-party insurance (CTP). You need this if you own a registered vehicle as it covers any liabilities for injuries caused during an accident.
Then there’s three levels of cover you can choose from:
Comprehensive cover. This is the highest level of cover you can buy and insures any damage to your vehicle, as well as to other vehicles or property in the case of an accident. Different insurers and policies may have different exclusions or clauses, but damage from storms or bad weather - like hail or falling trees - is often covered.
Third-party property damage. This just covers damage to other people’s cars or property if you are in an accident.
Third-party fire and theft. This is pretty much as it sounds. It’ll cover you if another driver damages your car, as well as fire and theft, but won’t give the same level of protection as. as comprehensive cover.
💡 Good to know tip – some insurers also provide a roadside assistance option as part of their cover. Consider if this is something you may need.
What makes up the cost of car insurance premiums?
So, like any business, your car insurer will want to make a profit. But the ICA report clearly shows this isn’t the reason that premiums have gone up.
Instead, it’s the cost of claims that’s driving up premium increases. In June 2018, the average cost of a car insurance claim was $3,658. In June 2024, that had risen to $5,202.
And this is a large part of the reason why premiums are going up. We’ve not become worse at driving. Instead, there are a number of factors, such as cars getting dearer and more extreme weather events like storms, fires and floods.
Did you know? Your premiums don’t only cover claim payments, they also cover reinsurance, which is the protection insurance companies pay to cover themselves from large claims or catastrophic events. And reinsurance has become more expensive for insurance companies due to the impacts of climate change and extreme weather events.
Why is my insurance more expensive now?
There are a few other factors driving up the cost of claims, and a lot of this can be found in the auto workshop. Repair costs make up about 60% of an insurance claim and those have increased by over 25% from 2022 to 2024.
There are reasons for this:
Rising labour costs. Yes, mechanics are also getting more expensive.
Ongoing global shortages in car parts. This started during COVID-19 and hasn’t really got any better.
Repairs are getting more complicated. Modern cars use more technology and the sheer range of EVs means there’s a lot of need for specialists.
Finally, while the cars have become more complicated, our skills haven’t kept up. There’s a shortage of mechanics who specialise in this tech, which means they can charge more, and there’s a long wait list. This translates to more costs for the insurers in the form of hire cars.
New vehicles also cost more now and that can also be a big concern for insurers if a vehicle is written off and needs replacing.
Then there’s fraud. According to the ICA, fraud is becoming a major concern for insurers, with detected fraud for motor and property in 2023 reported to be $560 million for ICA members. This has resulted in hiring more investigators and an increase in the time spent on claims, which pushes up costs.
This is all on top of the reinsurance and weather event concerns, and it’s why insurers warn we haven’t seen the end of premium increases.
How can you save money on car insurance?
To help keep costs down, the ICA is recommending the government intervenes as well as addresses the skills shortage issue in the industry. In particular, they would like thought given to:
Improving supply chains to keep the cost of parts down.
New rules for hire and accident management companies to make hire cars and towing cheaper.
These changes won’t be quick as they require long-term legislative updates, but in the meantime, here’s what you can do to keep your car insurance costs down.
Don’t get hit with the loyalty charge
Compare your car insurance each year to make sure you’re not overpaying. And while some people may shy away from asking about discounts, don’t be scared to ask your insurer.
If you’ve not made any claims and are a low-risk customer, a quick call could lower your premiums. If you don’t ask, you’ll never know.
Review your cover to identify potential savings
Check that you’re not paying for things that you’re unlikely to use. You can shave a considerable amount off your premiums by removing extra items.
Adding vehicle hire to your premium can significantly increase costs. It might not be feasible for everyone, but if you’ve got a second car or good public transport links, this may be a way to save.
Look at the difference in quotes if you select agreed or market value. This is how much your insurer will pay to replace your vehicle like-for-like. Market value tends to be cheaper.
Yes, but… if your car is worth a lot less second hand than the insurer will offer you for an agreed value policy, you could be left significantly out of pocket.
Consider your excess. Increasing your excess can lower your premiums.
Be aware: if you increase your excess you will be required to make a larger outlay when you put in a claim. So if you decide to bump up your excess to pay less in premiums, make sure you have the excess amount available in your savings.
Think before you claim
If you’re considering making a small claim, do the maths to decide if it’s worth the long-term cost. Your premium may be influenced by any claim you make, so for smaller dents or scratches, look at paying for the work outright to save in the long run. And don’t forget, not putting in a claim may earn you a discount.
Check the age of your drivers
Younger, more inexperienced drivers have a big impact on your premium. Make sure you’re only covered for the people that actually use your car and consider restricting where you can.
If you have multiple cars, think about adding your young driver to only one of the vehicles. Do they really need to be added to all your car insurance policies?
Bottom line
While rising car insurance costs are out of your control, there’s often money to be saved from doing your due diligence and being on top of your renewals.
Ultimately, if you’re driving a car, you need the peace of mind that comes with being insured and knowing that if the worst does happen, you’re covered for the costs.
Do your research and save where you can so you can be confident each time you – or your family members – get behind the wheel.
Go deeper:
Will driving after taking medication void my insurance claim?
Here’s why you may struggle to find a workshop to repair your EV
What is the difference between car insurance agreed value and market value?
Disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
