Why car insurance costs are going through the roof

Sick of hearing and reading about the cost of living? Okay then, let’s change things up a bit. Replace the ‘L’ in ‘living’ with a ‘D’ and an ‘R’, and we have a new topic ­– the cost of driving. Propelled by factors such as skyrocketing car insurance, the cost of driving has gone through the roof, even outstripping inflation.

This is not the news Aussie motorists want to hear, but it’s the reality of driving in 2024. What factors are involved? And, specifically, what’s driving up car insurance premiums?

Car insurance versus inflation

From a pre-pandemic low of less than 1 per cent, Australia’s inflation rate rose to nearly 7 per cent in 2022. It dropped back slightly in 2023 and is sitting at 5.3 per cent, according to the most recent Australian Bureau of Statistics (ABS) quarterly report.

In stark contrast, figures published by Forbes magazine this week show that car insurance premium increases far exceeded that rate. Australian analytics and actuarial consultancy Taylor Fry calculated the average increase for the 2022-23 year to be 15 per cent.

Taylor Fry’s Josh Jaroudy said the leading contributors to high claims costs were supply chain bottlenecks and labour shortages, which in turn drove skyrocketing vehicle prices and repair costs.

The cost of car parts also rose by about 15 per cent on average in the same period. That, combined with supply chain issues, labour shortages and technologically advanced cars created a “perfect storm”, according to another industry expert.

Nelson Henwood, from Finity Consulting, said there were a lot of delays in getting parts into the economy. “So what that does – together with labour shortages – is stretch out the time for a repair,” he said.

These longer time frames added further costs through insurance benefits, such as car hire while a vehicle was being repaired.

Other causes

Car insurance has not escaped the spectre of climate change. Australia has experienced several years of more frequent adverse weather events, including floods, intense storms and bushfires sparked by lightning. This has led to an increase in claims, with cars wiped out by inundation or fire, or severely damaged by falling trees or large hail.

Related to climate change and its prevention is an increase in the number of electric vehicles (EVs) on the road. In the long run, repair costs for EVs might fall, but not yet. For now, there remains a smaller number of specialist repairers.

And despite the otherwise low maintenance costs of EVs, some aspects of repair come with a prohibitive price tag – replacing or repairing an EV battery, for example. The complexities involved in assessing potential damage and long-term risks to the battery pack drive expenses up dramatically.

Preventable factor

Another driver of car insurance premium increases comes with immeasurable, tragic costs – fatal accidents. The number of road-related deaths increased in three Australian states last year – the two most populous, NSW and Victoria, and South Australia.

Without minimising the tragic consequences of these incidents, the cold hard fact is that they result in increased car insurance costs.

The vast majority of elements driving up our car insurance premiums beyond the inflationary average are out of our control. But there is one thing we can all do to help keep them down – drive safely.

Have you noticed a spike in your car insurance premiums? Have you made a change as a result? Let us know via the comments section below.

Also read: Mechanic or menace? How to avoid car repair rip-offs

Written by Andrew Gigacz

Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.

2 Comments

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  1. Here we go again – some bugger up the rest pay – we have NEVER claimed in 65 years of driving – but the blood sucking insurance companies make me pay the same, no benefits – just like where we live – little to no rain, but, we have to pay the same as the poor buggers in flood areas – Insurance companies need investigating – NOW

    • TOTALLY agree! Like you, I have never had a claim in over 55 years. To cut down on petrol costs, I bought an e-trike to ride to shops within close distance. That had been a massive saver – I only put petrol in the car every 6/8 weeks, and my car has done 4,200 kms in last 12 months. I also live in a very low risk area, home and garage with heavy security. BUT – made not an ounce of difference. My renewal premium – that wanted an increase of 120%! I would attach the proof if I could. This is outrageous, especially when I rang them to query this and was told that my premium had to take into account ‘world wide events’. So if there is a flood in Turkey, or a ship carrying vehicles gets sunk – my premiums increase. Nothing but a rort.

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