This won’t save you from having to read your insurer’s terms, but hopefully it sheds more light than that legal babble usually does…
Fuel, groceries, kids, mortgage repayments and even the humble can of Coke – few expenses have managed to escape the relentless grip of surging inflation rates.
To every motorist’s increasing frustration, car insurance bills are no exception – they’ve been hit by substantial increases in recent years, surpassing the standard inflation rate.
According to GlobalData, the Australian motor insurance industry is projected to achieve a 12.2% growth rate in 2024, driven by factors such as rising vehicle sales, federal and state encouragement of electric cars through subsidies, and an uptick in insurance rates. (That’s where we come in!)
When that unwelcome renewal email lands, the reasons behind the inevitable price hikes may not be immediately evident. Numerous factors are at play, of course, so here’s what you need to know.
Extreme weather events
It only takes a look outside the window for many to understand the significant impact of extreme weather events. Turn on the news and you’ll see cars in trees or floating down rivers that were streets only hours before.
Major events such as the recent Queensland floods result in a higher number of claims for car insurance companies, as vehicles are often badly damaged or written off after natural disasters. To ensure they can cover these losses without cutting too far into profits (heaven forfend), insurers raise prices across the board – not only for those living in affected areas.
Cars becoming more expensive
As the cost of cars continues to rise, encompassing both new and used vehicles, the expense of replacing an insured vehicle naturally increases.
The days of bustling sub-$20k segments are fading into the past, as our beloved crowd favourites gradually move up the price ladder, for many reasons. Even the used car market hasn’t been immune to this demand, experiencing value peaks during the pandemic that continue to have lingering effects.
In cases where your car is declared a write-off, insurers are spending more than ever to fund a comparable replacement for you.
In the broader economic landscape, factors like interest rates and investment returns can significantly impact insurers’ profitability. When insurers earn less from their investments, they may opt to raise premiums to offset the effects of lower returns. (Also known as: passing losses on to us regular car owners.)
Repairs and parts
Inflationary pressures have had a notable impact on the price of car parts, which, in turn, has led to higher repair costs – a phenomenon that has affected various industries grappling with similar economic factors.
The rising cost of international shipping, too, has posed challenges for insurers, hindering their ability to import parts as cost-effectively as they did in the past. It seems TEMU is the only business not passing on these insane shipping costs to consumers. (Indeed, China’s BYD now has its own vehicle transport ship to avoid having to deal with shipping companies.)
Similarly, the surge in repair expenses can be attributed to several factors, including the scarcity of parts, resulting in inflated prices. Supply and demand, 101.
The list of factors goes on…
Operational expenses for dealers and repair shops have risen due to increased energy bills, property and service fees, and wages – and as cars become more technologically advanced, the wages of qualified technicians are only going up.
The growing popularity of electric vehicles has also amplified repair expenses thanks to the smaller number of specialist repairers – and even more so when it comes to battery issues, despite the otherwise low maintenance costs of EVs.
Notably, the cost of insuring electric cars has seen a more significant increase compared to traditional internal combustion engine vehicles. It’s important to mention that insurers may be more inclined to declare EVs as write-offs, due to the sheer expense associated with replacing a damaged battery or the complexities involved in assessing potential damage and long-term risks to the battery pack.
Accident claims
Lastly, a key factor is simply the number of claims your insurer receives in a year. In a particularly claim-heavy year (both in theft or damage claims), the loss can be partially passed on to all consumers.
Sadly, Australia witnessed an increase in lives lost on the road last year, as figures revealed that the number of road-related deaths increased in New South Wales, South Australia, and Victoria in 2023 compared to the previous year.
If a particular region has a higher number of accidents or fatalities, or vandalism and thefts, insurance companies will consider it a higher-risk area. In such cases, insurance premiums for drivers in that area will typically be higher, because the likelihood of claims is greater. Conversely, areas with fewer incidents may see lower insurance premiums – but that doesn’t mean they’ll escape price hikes.
Your circumstances and retirement goals will play a big part in what you both decide to do. Give us a call at 08 8231 4709 or send us an email at info@centrawealth.com.au to find out how we can help you achieve your financial goals.
Article courtesy of WhichCar.