Car insurance is a tricky business. It is confusing and highly variable. As anyone who’s ever been through the process will tell you, it’s expensive too. However, what exactly are car insurers looking for? How do they determine the price of the quotes they offer? It often seems very difficult to figure out why your quote is the price it is. Today we’re going to shed some light on the deciding factors.
When insurance companies decide your quote, they are weighing up the risk factors. If something happens, like an accident or a theft, they are the ones paying out. With that in mind, a vehicle or driver that is high risk will incur a higher insurance premium. Low-risk drivers are less likely to get into trouble and so incur lower premiums. That all makes sense, but how exactly do they calculate risk? Well, that’s where it gets a bit more tricky.
They weigh up demographic information alongside the car you’re driving. They assess your driving history and habits. They look at your location and who will be driving the car. They get a complete understanding of how the car will be used before quoting. Without further ado, here’s a complete list of factors that affect your insurance quote.
- Type of insurance
First of all, there’s the type of insurance you opt for. The most costly insurance option is ‘fully comprehensive’. This covers you against any issue, regardless of fault. Whether it’s theft or a road accident, your insurers will pay for all damages. A cheaper option is ‘third party fire and theft’. As you’d expect, your insurer will cover damages to third parties and in the circumstance of fire or theft. This is cheaper because there are less situations where they’d have to pay out.
Insurers generally consider younger drivers to pose a higher risk. This is backed up by statistics too. Younger drivers are more likely to be involved in, or cause, road accidents. With that in mind, young drivers can expect to pay a higher insurance rate.
- Not sex
In the past, insurers used to quote higher prices for male drivers than female drivers. Particularly young male drivers. Statistics do show that young male drivers are the most dangerous on the road. Since they are the riskiest road users, insurance companies would charge a higher premium. However, the European Court deemed this illegal. Car insurance companies are no longer allowed to alter prices based on gender.
- Where you live
Car insurers take into account your postcode when deciding on premium quotes. Your location has a strong impact on the level of risk. If you live in an urban, built up area, your car is more at risk of accidents and thefts. Insurers bear this in mind when quoting. They also take into account the crime records in that area. If it is a hostile place for car theft, for example, your quote will be higher.
- Your job
Some jobs are considered more risky than others in the car insurance world. For example, commuters will incur a much costlier premium. That’s because they are on the road at the busiest times of day. They are also heavier road users. Those who work from home or don’t travel for their business will incur a lower price.
- The car you drive
The car itself plays a very big part in your insurance quote. Quite simply, the more expensive your car, the more expensive the premium. That’s because it will cost more to replace if stolen. This also relates to luxury or classic cars. When parts or repairs are generally very expensive, the insurance premium will be higher. As you’d expect, the more power a car has, the higher the insurance rate.
The safety rating is also very important when deciding insurance premiums. Inchcape Lexus tell us that most of their cars fall into a lower category than competitors, for example. This is all because the safety assist functions are better. If the car is less likely to suffer or cause damage in a crash, the insurance will be lower.
- Driver’s record
Insurers are very concerned about your past experience and driving record. If you’ve been driving for ten years without a single insurance claim, you are considered less risky. You have proven yourself as a good driver and your insurance will reflect that. However, if you have made several claims on insurance policies before, your rate will be higher. Your credit score is often a factor too, so it’s worth bearing that in mind.
- Voluntary excess
When you take out an insurance policy, you can set a voluntary excess amount. This is the amount you are willing to pay for damages before the insurance kicks in. For example, you might set your excess at £500 and scrape the car while reversing. If the cost of repair is less than £500, you’ll pay that. If it’s more, the insurance company will cover everything over £500. As you’d expect, your insurance quote will be lower if you set the voluntary excess high.
- How you use the car
Drivers who spend three hours a day commuting to work are considered very high risk. Compare that to a driver who uses the car once a week to go shopping. You can imagine which driver incurs a higher insurance premium. The more miles you clock up, the higher your insurance. If you’re on the road a lot, you’re much more likely to be involved in an accident.
Finally, insurers consider how secure the car is. If the car is stolen, they are liable to cover the costs. Drivers who secure their vehicle inside a garage or keep it on a well-lit street will receive a lower quote. Drivers who fit immobilisers, GPS trackers and alarms will also get a lower quote.
We hope this post has shed some light on how insurers calculate their quotes. It’s all based around risk. Ensure that you are the safest possible driver and you’ll reap the rewards!