Risk information - how is the price of your car insurance calculated
In order for an insurance company to offer a premium for you they need to know about
the risk they are taking on. Generally speaking the risk types that insurers use to
calculate a premium are the same, but due to the competitive nature of insurance and
that no two risks are identical, prices can vary from one company to another.
As previously mentioned, please remember motor insurance falls under 'utmost good faith'
which means you are required to inform the insurer of any relevant information whether
it was requested or not.
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The Association of British Insurers (ABI) assigns group ratings to
vehicles, with a large majority of the information being supplied to the ABI by
Thatcham. The group ratings will range between
1 & 20 and are based upon the risk of the vehicle. So, a one litre Nissan Micra
would be classified as a group 3 vehicle, whereas a Nissan 300 ZX with its 2960cc
engine would more than likely be a group 18 vehicle.
Other factors used to calculate group ratings are:
- Damage and Parts Costs - The likely extent of damage to each car model and the cost of the parts involved in its repair. The lower these costs, the more likelihood there is of a lower group rating.
- Repair Times - Longer repair times mean higher costs and the greater likelihood of a higher group rating. Different paint finishes on modern cars are an important factor, so these too are taken into account.
- New Car Values - The prices of new cars are taken into account as they are often a good guide to the cost of replacement and repair.
- Body Shells - The availability of body shells (the basic frame of the car) is taken into account in group ratings because they are essential for certain accidental damage repairs.
- Performance - Acceleration and top speed are important factors.
- Car Security - Security features fitted as standard equipment by motor manufacturers can help to reduce insurance claims costs. Such features include high security door locks, alarm/immobilisation systems, glass etching, coded audio equipment, locking devices for alloy wheels and visible vehicle identification numbers.
Though the ABI may originally assign a group rating to a vehicle it is often the case that
an insurer may reassign a vehicle to a different group. As an insurer can look over their
customer history and specify by a vehicle type, they may see a trend of a high number of
fault claims with a certain vehicle, which could lead them to reassign the vehicle to a
higher grouping. This would subsequently create higher premiums on the vehicle to balance
any potential trend of loss associated with that vehicle.
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Insurance companies will always ask about your claims history within the last 3 years, some will
want to account for the last 5 years. No matter how long a history they require, they will
need to know about all claims in that time regardless of blame.
If you have had a number of fault claims then you'll probably find your premium becoming more
expensive. It may seem harsh when this happens however an insurance company will no doubt take
the stance that given the prior fault claims you are more likely to have other fault claims
due to your driving style and so warrant a higher premium.
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Just as you are rated on your driving history so will any drivers you wish to be
added to your policy.
Adding a driver who can be defined as a safe risk (such as no claims or convictions,
driving for over twenty years) may cost nothing more than an administration charge.
However, many insurers charge for mid-term changes on your policy. If you add a driver
who's under 25, has a claim or conviction, whilst you currently drive a group 15
vehicle, then you can expect an insurer to add a substantial amount to your policy
given increased risk of an accident occurring.
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Insurance companies will rate on driving convictions. Simply put, if you have a
conviction (or convictions) on your licence then to an insurer you will appear to
be a greater risk on the road than a driver with no convictions. An insurance company
will probably ask for details of convictions in the last 3 to 5 years, mirroring the
time span for claims.
Undoubtedly you will have noticed the dramatic increase in speeding cameras now spread
across the U.K. This has meant that a greater number of people now have speeding convictions
on their licence which has led to higher premiums. However, it is unclear at this time
whether or not insurers' haven taken a view that they won't rate or load as much as they
did prior to the incursion of speed cameras.
There are of course a whole variety of different conviction types such as driving without
a licence, drink driving, reckless driving and so on. Understandably, the more serious in
nature the conviction, the more the insurers will load the premium. There is also the
added possibility that an insurer may add some terms to a policy or only offer lesser
levels of cover for more serious convictions.
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Anything and everything that may have an effect on your ability to drive will need to be
notified to the Driver and Vehicle Licensing Agency (DVLA). The
DVLA website holds a great
deal of information about driving and medical conditions which should help clarify any
questions you need answering. You may like to use the following link:
http://www.dvla.gov.uk/medical/ataglance.aspx.
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The more time you spend on the road the more likely you are to have, or cause an incident.
So, an insurance company will increase the cost of a premium the more mileage you cover.
As with all the risk information you supply, it should be as accurate as possible.
Admittedly though there are many people who say they cover the same mileage year after
year, this may not remain true if you change jobs or move address.
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Certain occupations will be classed as a higher risk perhaps not only due to high mileage
but because of goods being carried within the vehicle. For example a builder may carry
over a £1000 worth of equipment in their vehicle. An insurer may consider this a far
greater risk of the vehicle being stolen and potentially damaged or not recovered. Other
occupations which carry a higher risk with insurers are professional sportsmen and
sportswomen, entertainers, chefs and those linked with licensed premises.
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Car security is one of those things you simply should have. Being able to lock the
car doors isn't enough to deter a car thief and insurance companies are well aware of
this. Security devices can range from steering locks to alarms and /or immobilisers.
It's a sad fact that car theft and break-ins are commonplace within most towns and
cities.
During the early 1990s, the news was filled with stories of joy-riders stealing cars
and the subsequent damage and suffering they were causing. In 1992, the British insurance
industry tasked Thatcham with improving vehicle security.
Increasing the level of security fitted as standard to vehicles and improving the
quality of installation of security systems has helped to minimise insurance premiums
and reduce insurers' costs. The scheme was extended in 1996 to include light commercial
vehicles, in 1997 to include heavy commercial vehicles and again in 1999 to motorcycles.
If you have a car alarm and/or immobiliser fitted it is less likely that your car will
be stolen - you can therefore expect to pay less for your motor insurance policy than
someone who has no security device on their car.
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Vehicle value will play a major factor in how cheap or expensive an insurance premium
will be. If your car is worth £7,000 or £70,000 and is involved in a serious accident or
is stolen then you would expect the Insurer to foot the bill up to the full vehicle value.
So, your insurer would have lost money. It doesn't take a lot of working out to realise
that an annual premium must make up for some of the potential loss. Of course not
everybody is guaranteed to make a claim so the insurer can attempt to balance the costs
of their premium in order to remain competitive. Also, some cars are less expensive to
repair than others, perhaps due to availability of parts.
While an insurer is only ever going to pay you book price for your vehicle in the event
of a claim, should you advise the insurance company of a lesser vehicle value when you
take out the policy, there is a clear possibility your car insurer will not pay more
than the figure advised, regardless of the book price.
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Much the same as vehicle value, an older vehicle can often receive discounted rates as
the vehicle value is lower. Of course, this is not always the case as some vehicles
will be recognised as classic cars which could possibly increase an insurer's quote
due to potential difficulty in obtaining parts.
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Use of your vehicle will have a substantial effect on the premium. If you only use
your vehicle for driving between family and friends or to go shopping, this would be
the most minimum risk to an insurer. However, if you use your vehicle for both social
and business use, you will face a higher rate from your insurer, as you are considered
at greater risk of having an accident or claim due to the extra mileage or goods you
may carry.
Your policy and certificate will confirm exactly what you are covered for.
- Social, domestic & pleasure - This allows cover for day to day driving, such as a visiting family, friends or going shopping.
- Commuting - This covers a driver to and from one fixed place of work. It also includes travelling & parking at a railway station.
- Business use - This allows use of your car in connection with your job, such as driving to more than one place of work.
- Commercial travelling - This covers the car to be used for such things as door to door sales.
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Your address is another important factor to an insurance company when it comes to assessing
your premium. In an urban area you can expect increased levels of traffic as opposed to the
countryside which could mean there is a greater chance that your car will be involved in an
accident, become vandalised or even be stolen. Certain areas have a higher incidence of
vehicle crime and vehicle insurance premiums tend to reflect that risk.
Also leaving your car out on the road overnight, rather than in a locked garage may result
in higher premiums.
Most people will have their car registered and insured at one address but there are cases
where this will be different. For example students may spend their time divided between
home and their university or college. If they registered and insured the vehicle at their
home address but an insurer becomes aware that the vehicle is kept the majority of the
time at a different address, there may be a risk of a claim being declined due to
non-disclosure of information.
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