Motor insurance poised for growth – study
Motor insurance poised for growth – study | Insurance Business Australia
Insurance News
Motor insurance poised for growth – study
Analysts share the contributing factors that indicate potential substantial growth
Insurance News
By
Jonalyn Cueto
The Australian motor insurance sector is poised for substantial growth, with a projected compound annual growth rate (CAGR) of 9.9%. GlobalData, a data and analytics company, anticipates a surge from $24.1 billion (US$16.7 billion) in 2024 to $35.1 billion (US$23.9 billion) in 2028 in terms of direct written premiums (DWP).
GlobalData’s Insurance Database reveals a predicted 12.2% growth in the Australian motor insurance domain in 2024. This uptick is attributed to increasing vehicle sales, driven by a rising interest in electric cars (EVs) fueled by government incentives, and a rise in premium rates. However, the potential rise in interest rates might partially offset this growth in 2024.
Sravani Ampabathina, an insurance analyst at GlobalData, notes that the peak of growth in the Australian motor insurance industry occurred in 2023, aligning with economic recovery. The easing of the semiconductor chip shortage, which impacted vehicle sales in 2022, contributed to this growth. “The high demand for vehicles aided the motor insurance growth in 2023, a trend that is expected to continue in 2024,” he said.
Rising interest in the EV market
New vehicle sales, as reported by the Federal Chamber of Automotive Industries (FCAI), exceeded 1.2 million from January through December 2023, marking the highest level since 2017. The EV market also gained momentum in 2023, capturing a combined share of 16.2% of total vehicle sales, up 62.5% compared to the previous year. Higher premiums on EVs and hybrid vehicles, due to expensive batteries and spare parts, are expected to support 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, which can impact premium growth,” noted Ampabathina.
In 2023, insurers raised motor insurance premiums by approximately 10%, driven by repair cost inflation, reinsurance cost 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.
Looking ahead, Ampabathina says that the Australian macroeconomic outlook in 2024 is expected to see more activity than in 2023, with easing inflation supporting motor insurance growth. “However, the government’s interest rate decisions might partially offset motor insurance growth,” he said.
In November, the Reserve Bank of Australia raised the interest rate to 4.35%, the highest in over a decade. This move is anticipated to impact spending, potentially leading to a decline in new vehicle purchases in 2024 as loans become costlier.
“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,” said Ampabathina.
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