How car insurance quotes are calculated

Insurers ask a series of questions to everyone who is interested in insuring their car with them. This helps them identify the risk they are taking on i.e. how likely someone is to make a claim on a policy.

Generally, insurers evaluate (rate on) the same factors when calculating premiums, but as no two risks are identical, prices can vary from one company to another.

The main areas they look at are:

Car insurance group

All vehicles have a group rating given to them by The Association of British Insurers (ABI)^†. The ratings are based on the risk of the vehicle.

Factors used to calculate group ratings are:

What the vehicle is worth
Damage and parts costs - the likely extent of damage to each car model and the cost of the parts needed to repair it. Generally, the lower the costs, the more likely a vehicle is to have a lower group rating
Repair times - longer repair times mean higher costs and the greater likelihood of a higher group rating
New car values - the prices of new cars are considered 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

Insurers may reassign a vehicle to a different group based on trends they identify from their own records. For example if a certain car type was involved in many accidents, its group rating may increase, as would the premium charged for the vehicle, to cover the extra claim costs.

Claims history

All insurance companies ask about people's claims history, usually for the last 3 to 5 years. It stands to reason that the more claims someone has made, the more money insurers have paid out to cover their claim costs, they are therefore a greater risk and will be charged more for their policy.

Drivers

Insurers will look at all the drivers covered on your policy when deciding how much to charge you for your insurance.

Adding on a driver who is considered a safe risk (for example with no claims or convictions, has been driving for over twenty years) may cost nothing more than an administration charge. However, many insurers charge for changes you may want to make to your policy. If for example, you add a driver who's under 25 and has a speeding conviction, and you have a powerful car then you can expect your insurer to increase the price of your insurance substantially to cover the costs of the increased risk.

Driving convictions

Insurance companies will rate on driving convictions. If you have a conviction on your licence then insurers consider you to be a greater risk on the road than a driver with no convictions.

Your insurer will ask for details of convictions in the last 3 to 5 years.

The more serious the conviction in nature, the more your insurer will add to your premium. Sometimes an insurer may add special terms to a policy or only offer lesser levels of cover for more serious convictions.

Medical conditions

Insurers cannot charge extra for medical conditions if you hold a licence without any restrictions. If you do hold a restricted licence your insurer may need to take this into account when reviewing the risk. They may also take adaptations to vehicles into account if it means it will cost more to replace the adaptation (and so increase the risk).

Everything that may have an effect on your ability to drive has to be notified to the Driver and Vehicle Licensing Agency (DVLA)^†. The DVLA website^† has a lot of information about driving and medical conditions which should help clarify any questions you need answering: http://www.dvla.gov.uk/medical/ataglance.aspx.^†

Mileage

The more time you spend on the road the more likely you are to have or cause an incident, so your premium will increase the more you drive. As with all the risk information you supply, you should be as accurate as possible when telling your insurer what your annual mileage is.

Occupation

Your insurer will class certain occupations as a higher risk when, for example, someone carries goods in their vehicle.

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.

Security

Insurers will look at the security systems on your car when deciding what to charge for a policy. If your car has an alarm and/or immobiliser fitted it is less likely that it 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.

Vehicle value

The value of your vehicle will play a major factor in how cheap or expensive your insurance premium will be. A car costing £70,000 will cost more to repair if it is damaged in an accident or to replace if stolen, therefore the price of your insurance will be more than the insurance for a car worth £7000.

Vehicle age

Much the same as vehicle value, an older vehicle can often receive discounted rates as the vehicle value is lower. This is not always the case as some vehicles will be recognised as classic cars which could possibly increase your premium due to potential difficulty in obtaining parts.

Vehicle use

What you use your car for will have a substantial effect on your insurance premium. If you only use it for driving between family and friends or to go shopping, this would be the 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 making a claim because of the extra mileage you drive or the goods you may carry.

The different categories of vehicle use are:

Social, domestic & pleasure - you are covered for day to day driving, such as a visiting family, friends or going shopping but not to drive to work
Social, domestic, pleasure and commuting - you are covered for everything in the social domestic and pleasure category, plus driving to and from one fixed place of work. It also includes travelling and parking at a railway station
Business use - you can use your car in connection with your job, such as driving to more than one place of work
Commercial travelling - you can use your car for things like door to door sales

Remember! Your policy documentation will state what you can use your vehicle for.

Your address

Where you live is another important factor to an insurance company when it comes to assessing your premium. In a city you can expect increased levels of traffic as opposed to the countryside so there may be a greater chance that your car will be involved in an accident, be vandalised or be stolen. Certain areas have a higher level of car crime and insurance premiums tend to reflect that risk.

Also leaving your car out on the road overnight, rather than in a locked garage may affect your premium.

Remember! You must tell your insurance company if you move or if you spend more time at one address than another (for example a student may be at home at the weekends but spend the majority of time at college), they may not pay out on a claim if you haven't disclosed this.