Australia’s insurance industry continues to remain profitable despite rising claims costs, inflation and increasingly complex vehicle repairs, with motor insurance emerging as one of the most challenging – yet resilient – segments for both insurers and consumers.
Industry analysts say the cost of repairing modern vehicles fitted with advanced driver assistance systems (ADAS), electric vehicle components and sophisticated electronics is driving premiums higher, while severe weather events continue to place pressure across the broader insurance market.
Even so, insurers have largely maintained strong underwriting performance, supported by premium increases, tighter risk management and investment in technology that improves claims efficiency and fraud detection.
According to KPMG’s Annual Review 2025, which was recently published, insurers globally are operating in an environment of economic uncertainty, regulatory pressure and rapidly changing customer expectations, with resilience and profitability remaining central to long-term strategy. The firm noted that businesses are increasingly focused on balancing operational efficiency with customer trust, compliance and sustainable financial performance.
For Australian motor insurers, the issue is particularly acute. Even relatively minor collisions can now involve expensive sensor recalibration, radar alignment and camera replacement, significantly lifting average claim costs for repairers and insurers alike.
Body repairers have repeatedly warned that repair methods are becoming more technical and time-consuming, while shortages of skilled labour and supply chain delays for parts are adding further cost and frustration for customers waiting on repairs.
At the same time, insurers are managing a surge in catastrophe-related claims from floods, storms and bushfires, which continues to affect underwriting profitability across home, commercial and motor portfolios.
Motorists are feeling the impact through higher premiums, tighter underwriting standards and greater scrutiny of claims.
Many policyholders are also facing increased excesses and more questions around agreed value, replacement parts and EV battery coverage, particularly as electric vehicle ownership grows.
KPMG said organisations across financial services are responding by investing more heavily in technology, data and customer engagement to improve resilience and service delivery. Its latest CEO Outlook found 71 per cent of business leaders now see AI as a top investment priority, while 72 per cent have already adjusted growth strategies to respond to economic uncertainty.
For insurers, this includes better fraud detection, faster claims assessment and improved pricing models based on real-time risk analysis.
However, industry leaders say technology alone will not solve affordability concerns if repair costs continue to escalate.
The Insurance Council of Australia and repair industry bodies have both pointed to the need for stronger collaboration between insurers, OEMs and repairers to manage the long-term impact of vehicle complexity, sustainability demands and EV adoption.
As Australia’s vehicle fleet evolves and climate risks intensify, the motor insurance sector is being forced to adapt quickly.
The challenge for insurers will be maintaining profitability while ensuring cover remains accessible for everyday motorists already under pressure from broader cost-of-living increases.