When the car insurance industry is in chaos, it’s not a shocker, says economist
More than 20 years ago, when the Australian Insurance Association first began to study car insurance, it was estimated that a car insurance policy could cover between $100,000 and $500,000.
The average policy would cover between 40,000 to 50,000 of those claims.
But now that average has ballooned to about $1 million, according to the Australian Bureau of Statistics.
A few years ago when I started working for the AIA, I was amazed by how much the average policy had ballooned over the years, particularly for older and lower income households.
For example, when I was younger, I had a policy covering a car that cost $500 per year, but now it was $1.5 million.
The policy would have covered that car for between four and seven years, which is a lot longer than most people would have been able to afford.
So when the insurance industry started to struggle financially, I wondered if the trend was going to continue.
The AIA is forecasting that the average car insurance payout will peak in 2020, but the number of people who will pay more than that is still not known.
The insurer’s chief executive, Stephen Deakins, told The Australian Financial Review that the industry was currently facing “a crisis of confidence” with the government’s decision to cut the number in 2020.
The AIA has a plan to try and reverse this trend, with a new model that will see car insurance premiums rise by as much as 30 per cent in 2020 from the current $1,000, which will be replaced by a $1m premium.
Mr Deakens said that the model would be introduced by 2020, although he conceded that it was unlikely that it would work as well as the other models the AOA had in place.
“It’s an idea that I think is very promising, but I think the timing is right to make sure we have a plan in place to make this work, and to do it in a way that’s sustainable over time,” he said.
Mr Deakys point about the plan was not the first time that the insurance company has suggested a change in the way it is paid.
In 2015, the AASA unveiled a “roadmap” for the insurance sector, which included the creation of a new industry, the Automobile Insurance Agency.
It is estimated that the AAs biggest risk is from a growing number of motor vehicle insurers.
It’s hoped that the new agency will be able to offer the most affordable insurance options, and reduce the amount of money people have to pay to insure their car.