The Australian vehicle insurance industry is projected to grow at a compound annual growth rate (CAGR) of 9.9 per cent – from $24.1 billion in 2024 to $35.1 billion in 2028 – in terms of direct written premiums (DWP), according to data and analytics company GlobalData.
According to GlobalData’s insurance database, the Australian vehicle insurance industry is expected to grow by 12.2 per cent in 2024, aided by increasing vehicle sales, the growing popularity of electric cars incentivised by government subsidies, and a rise in premium prices. However, an increase in interest rates may partially offset growth momentum in 2024.
“In line with economic recovery, Australian motor insurance industry growth peaked in 2023, with the easing of [the] semiconductor chip shortage that impacted vehicle sales in 2022,” said Sravani Ampabathina, Insurance Analyst at GlobalData. “The high demand for vehicles aided motor insurance growth in 2023, a trend that is expected to continue in 2024.”
According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales exceeded 1.2 million during January to December 2023, the highest since 2017.
Driven by state government subsidies, new EV models and rising fuel costs, EV sales also gained traction in 2023. EV and hybrid vehicle sales held a combined share of 16.2 per cent of total vehicle sales in 2023 and grew by 62.5 per cent compared to the previous year. GlobalData said that higher vehicle insurance premiums on EVs and hybrid vehicles, due to their costly batteries and spare parts, will support vehicle insurance growth.
“In the short term, motor insurance growth will also be supported by premium inflation. However over the long term, significantly higher premiums might prompt consumers to lower their coverage, which can impact premium growth,” said Ampabathina.
According to GlobalData, most insurers increased vehicle insurance premiums by around 10 per cent in 2023 due to repair cost inflation and reinsurance cost pressures. Frequent natural catastrophe (nat-cat) losses also contributed to the premium price increase. According to the Insurance Council of Australia (ICA), more than 7,500 claims were made in May 2023 in Newcastle due to a hailstorm, of which 6,000 involved damage to vehicles. The cost of total claims incurred was $238 million.
“The Australian macroeconomic outlook is expected to be more buoyant in 2024 than in 2023 with easing inflation, which will support motor insurance growth. However, the [Reserve Bank’s] interest rate decisions might partially offset motor insurance growth,” added Ampabathina.
According to GlobalData, higher interest rates are expected to have an impact on spending, leading to a decrease in new vehicle purchases in 2024 as loans are likely to become costlier. However, Ampabathina said increasing demand for vehicles driven by economic recovery paints a favourable growth outlook for the Australian motor insurance industry over 2024 to 2028, adding that insurers’ loss exposure from nat-cat events and inflationary challenges will continue to remain focus areas over 2024.