How do insurers calculate car insurance premiums?

Insurers calculate your car insurance quotes by asking questions that determine your risk factor.

Amy Smith

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How do insurers decide what to charge?

The questions insurers ask you help them to decide how likely you are to make a claim on your car insurance policy.

Key points

  • Your insurance quotes are based on how much of a risk you’ll be to insure
  • The questions are usually the same, but prices can vary between insurers
  • The cheapest policy doesn’t always mean the best
  • Find insurance that’s right for you by comparing policies

Insurers tend to ask the same sorts of questions, but how they interpret your answers and how much of a risk you are will never be completely the same. That means prices can vary a lot between providers.

The main areas insurers look at to calculate your quotes are explained below.

Car insurance groups

All vehicles have a car insurance group rating given to them by the Association of British Insurers (ABI).

Insurance groups run from one to 50 and the lower the group, the lower your insurance will be.

Ratings are based on how risky your car is to drive and how difficult it’d be to replace or repair it. They also consider:

  • Your vehicle’s value
  • How much the car would cost new
  • Cost of parts and repair
  • How long it takes to repair
  • Availability of the basic frame of the car (body shell)
  • Vehicle power, acceleration and top speed
  • What security features your car has

Insurers can change your vehicle’s insurance group based on trends and frequency of accidents they find in their own records.

Your age

As younger drivers have less experience on the road, they’re viewed as high risk and more likely to be involved in an accident.

Drivers between the ages of 17 and 24 have higher insurance premiums because of this. Experienced and older drivers tend to have lower premiums.

There’s a tipping point though, as you continue to age premiums rise again.

Gender

Even though gender isn’t considered when getting car insurance anymore, quotes for women can still be cheaper than those for men. It’s argued that this isn’t down to gender, just who’s the safer driver and less likely to make a claim.

Insurers still offer ‘women’s car insurance’ by tailoring advertising to target women, but there’s no reason why a man can’t apply for a policy that’s aimed at women.

Claims history

All insurers want to know your claims history for the last three to five years.

If you have a history of claims, insurers think you're more likely to make a claim in the future and the price of your premium will reflect that.

Other drivers

All named drivers on the policy will be considered when insurers decide how much to charge you.

Low risk drivers - such as someone who’s got 20 years’ driving experience with no claims - may not cost much to add to a policy, if anything at all. In fact, it could reduce the price of the premium.

Adding a driver who’s under 25, has no experience or that has a speeding fine will add to the cost of your insurance as they’re a greater risk.

Not being honest about who the main driver is on your car insurance is a form of fraud called fronting. It will leave you worse off if you’re caught and there are lots of legal ways to reduce the costs of your premiums

Driving convictions

If you have a driving conviction on your licence, you’ll be considered a greater risk than someone who doesn’t, and you’ll need to tell your insurer.

You must tell your insurer about any unspent convictions you’ve had in the last three years - not just for driving.

Unrelated convictions will increase the cost of your car insurance, but they need to be declared.

Medical conditions

Medical conditions won’t be considered if you have a licence without restrictions. If you have a restricted licence, insurers will take this into account when evaluating the risk.

Vehicle adaptions that help with a disability or illness will also be considered, as this increases the cost of repair, should you need to make a claim.

Mileage

If you’re spending a lot of time on the road, you’re at greater risk of being involved in an accident and your premium will increase.

Be as accurate as possible when estimating your mileage or your cover could be declared invalid if you made a claim.

Occupation

Some jobs are classed as higher-risk, such as if you’re a goods courier or racing driver, which impacts premium prices.

This could be because the policyholder is likely be on the road more often, carry expensive equipment, or more likely to speed.

Security

Most new cars come fitted with an immobiliser which helps to deter thieves from stealing it.

You can find out what kind of security your vehicle has by looking in its handbook or asking a mechanic to check.

If your car has lots of security devices and is parked in a secure driveway or garage, then your premiums will be lower.

Vehicle value

Vehicle value matters because pricier cars are expensive to replace, repair and maintain - your insurer will factor this in, to cover those costs if you ever make a claim.

If your car is a write-off, your insurer will pay out based on the market value for your car.

Spending a lot upgrading or modifying your car means it could be worth more than the standard market value for cars of the same type, so you’d lose out if it’s written off.

If this is the case, you might be better off with an agreed value policy, which allows you and your insurer to agree on your vehicle’s value - a fixed sum is paid if it’s written off.

Vehicle age

Older vehicles tend to be worth less, making them cheaper to insure. But they often have poor security making them easier to steal, which can push premiums up.

Classic cars will be generally high value, and it can be difficult to find parts, which would push up the premium.

Vehicle use

Using your car to commute means you’ll have higher quotes as you’ll be driving in busy traffic.

Driving your car for business will be the most expensive. You’ll be considered high-risk for travelling frequently to different business locations or carrying expensive goods.

Check your policy documents to see exactly what you can and can’t use your car for.

Driving to work and driving for work are different. Driving to work is commuting - an option under standard car insurance - but you’ll need business car insurance if you drive for your job

Address

In a city, there’s dense traffic and a larger population, which means there’s a greater chance your car will be involved in an accident, get vandalised, or stolen.

Certain areas have higher levels of car crime, so to reflect that risk, insurance prices will be expensive.

You need to tell your insurer if you move or your car spends time at another address, so they can reassess the risk. An insurer won’t pay out for a claim if your details aren’t accurate.

Vehicle desirability

Cars that are highly desirable are a target for thieves which will increase your premium.

Excess

Excess is an amount you pay if you make a claim on your insurance.

Compulsory excess is set by the insurer, but you can choose how much voluntary excess you pay.

Increasing the voluntary excess will lower the cost of your car insurance, but you need to be sure you can afford the total amount of voluntary and compulsory excess you’d have to pay if you made a claim.

Type of cover

Third party only (TPO) is the most basic type of car insurance required by law, while third party fire and theft (TPFT) is the middle tier.

Comprehensive insurance offers the highest level of cover, but it doesn’t include absolutely everything. There’s usually plenty of optional policy extras that you can add-on if you need them.

As a lot of high-risk drivers tend to go for third party policies, comprehensive insurance is sometimes the cheapest option, but it’s best to compare all policy types to be sure you’re getting the right cover for you.

Length of cover

Short-term car insurance policies will be expensive - they’re usually used by higher risk drivers, like learners.

How to get cheaper car insurance

Just two ways you can save money on your car insurance is to pay annually and build up your no claims discount. But there are plenty more ways to reduce your premiums.

Choosing the wrong insurance will cost you more in the long run, so make sure you get the right car insurance for you and compare policies to find a good deal.

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