How car insurance is calculated
Many of us have watched with horror as our car insurance premiums have risen significantly over recent years, but if you can gain an understanding of the key factors that influence your premiums, you may be able to take action in some areas to reduce them – without compromising the level of cover.
There are some factors you won't be able to change, of course, such as gender or age – but you will be able to have an influence over others, such as the type of car your drive, its uses, and how many miles you clock up each year.
Type of cover
One of the biggest factors influencing the cost of insurance is, of course, the level of cover you purchase. Comprehensive cover offers the greatest level of protection, so it is usually more expensive than Third-party or Third-party, fire and theft cover, which only offer protection in a far narrower range of circumstances.
Age and gender
Statistics show that women tend to make fewer claims than men, and that the claims they do make are less expensive; data also shows that young drivers are more likely to be involved in accidents and to make claims than other age groups. So it makes sense that young male drivers will tend to face higher premiums than older female drivers, for example.
However, a ruling by the European Court of Justice in March 2010 stated that insurers could no longer use gender as a factor in setting premiums from December 2012 – so insurance premiums for women may well rise further, while men may see some reductions.
There's not much we can do about factors such as age and gender, but remember that different insurers give a varying 'weight' to these factors – so always shop around for several quotes from a variety of providers to see how they compare. There are also steps you can take to attract discounts from some insurers – for example, an advanced driving qualification can improve your road skills and help prevent accidents, while at the same time potentially minimising the cost of your insurance.
Cars are placed in an insurance grouping based on an assessment of the level of associated risk they pose for the insurer. Faster and more powerful cars are more likely to be involved in serious accidents, so vehicles with larger engines tend to cost more to insure. If you modify your car, you should also inform your insurer because they may need to adjust your premiums. If you don’t inform them of modifications, you run the risk of invalidating your cover when you come to make a claim. More desirable cars with a higher value also cost more to replace, so inevitably the insurance is going to be more expensive.
When you're buying a car, find out its insurance group and think about whether you can afford a car in that category.
Your occupation can also influence premiums because statistics used by insurers to assess risk may show that certain jobs carry a greater risk of claims. If it's possible to describe your job with more than one title (e.g. 'journalist' or 'reporter'), try both job titles to retrieve quotes and compare the results. Never be tempted to provide a job title that doesn't truly reflect what you do, however, or you could risk invalidating any claims.
Where you live also has an impact on the cost of your insurance. If you live in an area with high levels of vehicle crime, this will push up the premiums, as will living in a built-up area where there is a greater risk of road accidents.
As a rule of thumb, the more you use your car, the more you pay in insurance. If you can limit your use to 'Social', you should quality for cheaper premiums – whereas if you need to use your car for commuting or commercial travelling you can expect to pay more.
Your annual mileage also influences premiums. The more you're on the road, the greater the chance of being involved in an accident – so if you can agree and stick to a lower annual mileage limit, you'll enjoy lower premiums too.
Driver record and claims history
Your claims history and any endorsements on your licence have a significant impact on how your premiums are calculated. You will be asked to give details of any claims in the past five years, and whether you were at fault. If you've built up any no-claims bonus because you haven't made a claim in the past year or more, you should be eligible for a discount – although the amount will vary from one insurer to the next. The discount could be anything up to 70% for five years of no claims.
Other named drivers on your insurance policy can also have an impact on premiums. If you add a more experienced driver, you may see your premium fall – whereas if you are an experienced driver yourself and then add a young motorist, you may see a hike in your premiums.
If you agree to a higher voluntary excess (the amount you pay in the event of a claim) you will enjoy lower premiums – because for any payout, the amount your insurer has to pay will be reduced by whatever amount you agree to for your voluntary excess. They also figure that you may be less likely to make claims for small amounts, because you have to pay the first chunk of it yourself anyway and will risk losing any no-claims bonus.