The report identifies several key factors contributing to the rise in premiums:
- Claims Costs: The average claims cost has escalated by 42% between 2019 and 2024, mirroring the increase in premiums. This uptick is attributed to higher expenses for vehicle replacement, parts, and labour, alongside the growing complexity of vehicle technology.
- Repair Costs: Repair expenses have climbed 26% since 2022 due to rising wages, more expensive spare parts, and extended repair times. Notably, claims involving credit hire companies have quadrupled since 2019 and are, on average, three times more costly than standard claims, further driving up premiums.
Despite the parallel rise in claims costs and premiums, data from the Australian Prudential Regulation Authority (APRA) indicates a decline in underwriting profit for motor insurance lines. Insurers' motor insurance costs as a proportion of premiums collected have increased from 89% in June 2019 to 94% in June 2024, highlighting the diminishing profitability of this product.
To address these systemic cost drivers, the ICA advocates for coordinated action by state, territory, and federal governments. Key reforms proposed include:
- Addressing Labour Shortages: Nearly half of vacancies in motor trades businesses rely on overseas workers due to chronic skills shortages. However, hiring them is challenging due to bureaucratic hurdles. Significant investment in training is also necessary, with only 58% of apprentices completing their qualifications.
By implementing these reforms, the ICA aims to tackle the root causes of rising claims costs, ultimately delivering relief to consumers facing escalating motor insurance premiums.
