What is car insurance?

Car insurance in Australia is divided into two main types. Compulsory Third Party (CTP) insurance, which covers personal injury caused by the vehicle, is mandatory for every registered vehicle and is typically paid as part of registration each year. Optional cover for damage to vehicles and property comes in three tiers: third party property, third party fire and theft, and comprehensive insurance.

CTP arrangements vary by state. New South Wales, Queensland, and the Australian Capital Territory operate competitive CTP markets where vehicle owners choose from several private insurers. Victoria, South Australia, Western Australia, Tasmania, and the Northern Territory operate single-insurer schemes (the Transport Accident Commission in Victoria, the Motor Accident Commission in South Australia, the Insurance Commission of Western Australia, the Motor Accidents Insurance Board in Tasmania, and TIO in the Northern Territory). All schemes cover personal injury to drivers and passengers of the vehicle and to other road users injured by the vehicle.

Optional cover ranges in price and protection. Third party property covers damage caused by your vehicle to another person's vehicle or property, typically with limits of 5 to 20 million dollars. Third party fire and theft adds cover for fire damage to and theft of your own vehicle. Comprehensive insurance covers damage to your own vehicle from accidents (at fault or not), theft, fire, vandalism, weather, and damage caused while parked, in addition to third party property cover. Most lenders require comprehensive cover on financed cars.

Premiums depend on the vehicle, the driver's age and driving history, the postcode, the agreed excess, and any nominated drivers. Younger drivers and those with recent claims or driving offences pay more. Most insurers offer rating discounts for drivers with no recent claims, often advertised as Rating 1 or comparable highest rating. Optional add-ons include hire car after an accident, windscreen excess waiver, and roadside assistance. After an accident, the driver lodges a claim with the relevant insurer, pays the excess, and arranges or has arranged the assessment and repair of the vehicle. Disputes go through the insurer's internal complaints process and then to AFCA.