Why your car insurance is more expensive than ever before, according to insurers

03/23/2025 08:56 PM

A new report commissioned by a lobby group for insurance companies has blamed the complexity of modern vehicles and rising labour costs for the sharp increase in the cost of premiums – not firms chasing higher profits.

Comprehensive motor insurance has increased by 42.35 per cent in the five years between June 2019 and June 2024, now averaging $1052 per year, according to a new study by the Insurance Council of Australia.

The study is designed to offer "strategic recommendations for government action to help address these cost pressures", but also claims to lift the lid on exactly why we are seeing these higher premiums.

It says a big contributor to rising insurance costs is that cars are now more expensive to repair, with the size of claims rising 42.2 per cent over that time – mirroring the increase in premiums.

Are insurance companies getting greedy?

The report also points out that "profit margins [of car insurers] are not the main culprit", with their calculations showing that, on average, insurance companies have "reduced underwriting profit margins" over the five-year period.

The equation looks at the net combined ratio (NCR), or total costs divided by total premiums collected, which has increased from 89 per cent to 94 per cent because of increased costs for the insurers.

It must be noted that the report has been commissioned by the Insurance Council of Australia, an industry group claimed to represent “85 per cent of total premium income written by private sector general insurers”.

Why is my insurance premium going up every year?

The study blames these cost increases on the higher cost of repairs, which it says on average have increased from $3658 to $5202 from 2019 to 2024.

However, it acknowledges "there is limited publicly available data on motor vehicle repairs costs", with its data set based on just one – albeit the largest – vehicle repair company in Australia, AMA Group.

The study also does not indicate whether the frequency of claims across Australia is increasing, which would also have an impact on premium costs.

It does call out a 20 per cent jump in total loss claims in New South Wales (NSW) due to the state "reducing salvage recovery values".

Are car parts more expensive now?

According to the report, spare parts and accessories for vehicles have increased by 25.9 per cent in the five-year period, which it attributes to the proliferation of advanced driver assistance systems such as autonomous emergency braking (AEB) and adaptive cruise control.

This means even a minor low-speed front-end collision could result in thousands of dollars in repairs due to expensive components and complex calibration required.

The increased popularity of electric vehicles (EVs) is also said to play a part, with the study stating they "often require specialised parts, more sophisticated diagnostic tools, and skilled technicians" to carry out repair work.

In addition, inflation and a skills shortage are also increasing wage and labour costs, with automotive electricians, panel beaters, and vehicle painters all being paid 20 to 54 per cent more over the 2018-2023 period.

The report posits that it is a combination of expensive labour and the "increasing complexity of vehicle technology" that is driving up the average car insurance cost for Australians.

What else is having an impact?

Outside the repair costs, which account for around 60 per cent of claims cost expenses, the rising price of new vehicles is also said to influence increasing insurance premiums.

According to the data, 25 per cent of insurer claims costs is earmarked for a total loss claim, and with the price of a new-vehicle replacement increasing, so too does the premium.

However, while the report claims there is an increased number of total loss claims, it does not provide a specific number, only that "some insurers [are] indicating around a 20 per cent increase in frequency".

Why is it taking so long to repair a car?

In 2019, the average time for a vehicle repair was 38.57 days, but that has now increased by 58.06 per cent to 61.25 days in 2024 due to parts delays and a stretched industry workforce.

As a result, insurance companies say they are footing the bill for longer rental car hires, driving up premiums.

Finally, the report outlines an increasing number of fraudulent claims, which requires either a legal response or an increased workload to untangle.

"Insurance companies must either absorb fraud costs or spread them across the business as an underwriting expense," said the study.

"As such, insurance fraud is also putting pressure on overall claims costs."

Why are insurance prices going up when car values are going down?

The study also addresses the common question of why insurance prices are increasing while cars are depreciating in value and worth less each year.

"The key is that the primary driver of insurance costs is repair expenses – not the resale value of the vehicle," the report claims.

"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."

Where is car insurance most expensive in Australia?

In a breakdown of average costs per state, New South Wales, the Northern Territory, Victoria, and the Australian Capital Territory pay more than the national average.

Meanwhile, Queensland, South Australia, Tasmania, and Western Australia pay – sometimes – significantly less.

The difference between the highest and lowest, or between the average insurance premium between NSW ($1176) and Tasmania ($757) is $419, according to the study.

What can be done to reduce insurance costs?

The study also lays out some areas of improvement to reduce insurance premiums going forward.

Specifically, it says addressing the motor trades skill shortage will ease the increasing labour costs of car repair.

A strengthening of the automotive supply chain – especially after the closure of local vehicle manufacturing, even though this was close to a decade ago – and putting more legal pressure on car brands to make parts available are also recommendations.

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