The Insurance Council of Australia (ICA) has outlined a series of policy proposals intended to manage the systemic factors driving up the cost of motor insurance, as average premiums climb to over $1,050 annually.
In a report titled “Motor Insurance Policy Paper – A Roadmap for Reducing Rising Premiums,” the industry body said comprehensive motor premiums have risen by 42% since 2019, a trend closely tied to inflationary pressures on claims and repair costs.
According to the ICA, average claims expenses have tracked the same 42% growth over the five-year period. Higher costs associated with vehicle parts, repair labour, and increased vehicle technology complexity are among the main contributors.
Data from the report highlighted a 26% rise in repair expenses since 2022. Labor shortages, expensive components, and longer wait times for repairs have pushed up bills, which now represent about 60% of total claim costs.
Insurers are also absorbing higher payouts for written-off vehicles. New car prices have increased by up to 39% since 2019, while second-hand vehicle values have gone up 32%, making replacement costs a significant burden. These write-offs account for about a quarter of all motor insurance claims.
The costs related to rental vehicles have risen 70% over the same timeframe. The increased use of credit hire firms – companies that provide replacement vehicles to not-at-fault drivers – has driven up insurer liability. These claims, which have quadrupled in volume since 2019, are typically three times more expensive than standard rentals.
Insurance fraud has also contributed to rising costs. The ICA estimates that fraudulent activity, including staged incidents and false damage reports, cost the industry $560 million in 2023 alone.
Despite the higher premiums, Australian Prudential Regulation Authority (APRA) data shows profitability has declined. The claims-to-premium ratio for motor lines rose from 89% in mid-2019 to 94% by mid-2024, reflecting growing pressure on underwriting margins.
To counter these issues, the ICA is calling for policy action at all levels of government. Recommendations include:
The ICA also advocates for tighter oversight of credit hire operators through a mandatory code, increased enforcement against fraudulent claims, and aligning New South Wales’ written-off vehicle rules with other states to allow repairable vehicles to be safely registered again.
This comes as the motor repair industry is moving forward with changes to its Code of Conduct. The Code Administration Committee, jointly managed by the ICA and Motor Trades Association of Australia, has opened an eight-week public consultation running until April 29.
The proposed revisions follow a 2023 review led by Dr Michael Schaper and aim to clarify rules around repair methods, timelines, penalties, and dispute resolution. The committee is also considering a governance restructure, including the possibility of incorporation to better manage the code’s operations and accountability.
ICA CEO Andrew Hall said insurers are actively seeking efficiencies, but some cost drivers lie beyond the sector’s control. Government intervention is needed to tackle these underlying pressures.
“Insurers are doing their bit to reduce costs – such as streamlining operations, negotiating better repair arrangements, and investing in the repair workforce – but the reality is many cost drivers are outside the industry’s control. We need governments to step up with targeted reforms,” he said.
He said the roadmap presents practical steps to improve system-wide efficiency and fairness and urged cooperation from all levels of government.
“Australians deserve access to affordable and sustainable motor insurance, and that will only be possible if we address these cost pressures at their source,” Hall said.
