We get many questions along the lines of ‘Why is my car insurance premium so high?’ and ‘How do I cut the costs of my car insurance?’, so we thought we’d take some time to explain how the price you pay is calculated.
Car Insurance premiums are made up of three elements. The rate, the commission and the profit.
When you apply online for a car insurance quote the answers you give to the questions will decide how the rate is built up, and consequently how much your premium will be. Car Insurance online forms will ask you about the risk – the risk is You and the Car you drive!
Although the car you drive will determine the price you pay, it is information about you the driver which will determine the main part of the premium cost. It is you that are being insured primarily and it is you that is the risk being taken on.
The two most important rating factors that are related to you as an individual are where you live and your age. Like it or not where you live, your geography, is the most important factor and Car Insurance is a postcode lottery built up from system postcode tables with different rates for every postcode sector in the UK.
If you live in an area where car theft is high or perceived to be high by the underwriters then you will pay through the nose for it. This is particularly true for most inner city locations throughout the UK.
Short of moving there is little you can do to cut your premium costs, although many companies will offer discounts if you take additional security measures such as fitting an alarm or parking your car securely off-road or in a garage.
Your age is as equally important in deciding the premium base rate. Young drivers under 25 are penalised because of their age and their driving experience. They are far more likely to be involved in minor and major accidents and losses than an older experienced driver. Similarly companies are prepared to offer reduced rates for older drivers specifically to attract this type of business.
Your sex or gender is equally important. Insurance companies employ specialists to calculate the rates called actuaries. These actuaries look at long term trends and claims and if you are Male and under 25 you are going to get your premium loaded as the highest risk.
So if you cannot change where you live, your age or your gender how can you reduce the premiums? The easiest solution is to shop around which might take a bit of time or effort but could pay large dividends if you fit into any of the above brackets. Many smaller insurers have policies tailored towards the awkward end of the market where the risk pool is larger and can afford to discount rates to attract business. Don’t waste your time on the insurance aggregator sites as these carry large commissions and are only geared to those risks seen as standard by the insurers. Try to visit some specialist car insurers who will understand your problems and may have monthly payment methods. Alternatively take some time to speak to a