Latest market snapshot from GlobalData;
The Australian motor insurance industry is projected to grow at a compound annual growth rate (CAGR) of 9.9% from AUD24.1 billion ($16.7 billion) in 2024 to AUD35.1 billion ($23.9 billion) in 2028, in terms of direct written premiums (DWP), according to GlobalData, a leading data, and analytics company.
According to GlobalData’s Insurance Database, the Australian motor insurance industry is expected to grow by 12.2% in 2024, aided by increasing vehicle sales, the growing popularity of electric cars (EVs) incentivized by government subsidies, and a rise in premium prices. However, an increase in interest rates may partially offset the growth momentum in 2024.
Sravani Ampabathina, Insurance Analyst at GlobalData, comments: “In line with economic recovery, Australian motor insurance industry growth peaked in 2023, with the easing of semiconductor chip shortage that impacted vehicle sales in 2022. The high demand for vehicles aided the 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–December 2023, which is the highest since 2017.
Driven by government subsidies, the introduction of new EV models, and rising fuel costs, EV sales also gained traction in 2023. As per the FCAI, EV and hybrid vehicle sales held a combined share of 16.2% of total vehicle sales in 2023 and grew by 62.5% as compared to the previous year. The higher motor insurance premiums on EVs and hybrid vehicles, due to their costly batteries and spare parts, will support motor insurance growth.
Ampabathina continues: “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.”
In 2023, most insurers increased motor insurance premiums by around 10% 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), over 7,500 claims were made in May 2023 in Newcastle due to a hailstorm, of which 6,000 involved damage to motor vehicles. The cost of total claims incurred was AUD238 million ($164.8 million).
Ampabathina adds: “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 government’s interest rate decisions might partially offset motor insurance growth.”
In November 2023, the Reserve Bank of Australia (RBA) raised the interest rate to 4.35%, the highest recorded over a decade. However, 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 get costlier.
Ampabathina concludes: “Increasing demand for vehicles driven by economic recovery paints a favorable growth outlook for the Australian motor insurance industry over 2024–28. Insurers’ loss exposure from nat-cat events and inflationary challenges will continue to remain focus areas over 2024.”
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