The Australian motor insurance industry is poised for substantial expansion, with GlobalData, a leading data and analytics company, projecting a compound annual growth rate (CAGR) of 9.9%. According to GlobalData’s Insurance Database, this surge is expected to propel direct written premiums (DWP) from $24.1 billion (US$16.7 billion) in 2024 to a formidable $35.1 billion (US$23.9 billion) by 2028.
In the year 2024 alone, GlobalData foresees a noteworthy 12.2% growth within the Australian motor insurance domain. This upswing is credited to escalating vehicle sales, fueled by a growing interest in electric cars (EVs) buoyed by government incentives, coupled with a surge in premium rates. Nevertheless, the potential rise in interest rates may pose a partial offset to this growth in the same year.
Sravani Ampabathina, an insurance analyst at GlobalData, highlights that the pinnacle of growth in the Australian motor insurance sector materialized in 2023, aligning with economic recovery. The alleviation of the semiconductor chip shortage, which impacted vehicle sales in 2022, played a pivotal role in this growth. “The high demand for vehicles propelled motor insurance growth in 2023, a trend expected to persist in 2024,” Ampabathina asserted.
Rising Interest in Electric Vehicles
The Federal Chamber of Automotive Industries (FCAI) reports new vehicle sales exceeding 1.2 million from January to December 2023, marking the highest level since 2017. In 2023, the electric vehicle (EV) market gained momentum, capturing a combined share of 16.2% of total vehicle sales—an increase of 62.5% compared to the previous year. Higher premiums on EVs and hybrid vehicles, attributed to costly batteries and spare parts, are anticipated to bolster motor 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, impacting premium growth,” cautioned Ampabathina.
In 2023, insurers raised motor insurance premiums by approximately 10%, driven by inflation in repair costs, reinsurance pressures, and frequent natural catastrophe losses. The Insurance Council of Australia (ICA) reported over 7,500 claims in May 2023 in Newcastle due to a hailstorm, with 6,000 involving damage to motor vehicles, incurring a total cost of $238 million.
Challenges on the Horizon
Looking ahead to 2024, Ampabathina anticipates a more active macroeconomic outlook compared to 2023, with easing inflation supporting motor insurance growth. However, the Reserve Bank of Australia’s decision to raise the interest rate to 4.35% in November may impact spending, potentially leading to a decline in new vehicle purchases as loans become costlier.
“Despite increasing demand for vehicles driven by economic recovery, the Australian motor insurance industry faces challenges related to insurers’ loss exposure from natural catastrophe events and inflationary pressures,” concluded Ampabathina.
