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How is car insurance calculated?

Car insurance providers calculate your car insurance according to a number of variables, from personal information like the car you drive and any previous claims to external factors such as current legislation and the prices of replacement parts and labour (both of which are subject to change). 

We’re here to help you understand just how car insurance companies produce their quotes and calculate what you pay. Continue reading for more.

how to calculate car insurance costs guide
how to calculate car insurance costs guide

What factors influence your insurance quote?

There is a myriad of factors that insurers take into consideration when producing a quote. Insurance quotes are largely based on how much of a risk you are to insure, so car insurance providers will ask you a number of questions so that they can get an understanding of your risk profile. 

These questions are generally the same across most companies, but prices will often vary, which is why you should compare insurance with Quidco. 

Here is what insurers need to know to calculate your insurance premiums. 

Your age and your driving experience

As well as the standard details needed to create your account, insurance companies will also need to know your exact age and how much experience you have behind the wheel. 

The younger you are, the more you’ll have to pay for your car insurance. It’s a simple fact widely accepted by car insurers, and it has to do with the lack of driving experience. The less experience you have on the road, the likelier it is you’ll be involved in an accident where you have to claim. 

Once you reach 25 years old, you should find that your premiums become cheaper depending on how much experience you have built up. Fortunately, there are options to help new drivers reduce their insurance premiums. 

Meanwhile, from your late 60s onwards, the element of risk increases again, and this is then reflected in the cost.

The car you would like to insure

This is another important factor that helps insurers calculate your premiums. Car insurance groups, a classification system devised by the Association of British Insurers (ABI) and UK automotive safety experts Thatcham Research, assigns ratings from 1-50 based on the safety and security of every model of car sold in the UK. 

These ratings inform the risk potential of each car, which UK insurers refer to when producing quotes. A greater understanding of car insurance groups will provide all the information you need.  

Generally speaking, high-performance sports cars are more costly to insure than, for example, hatchbacks. It depends on certain factors like repair costs, how long repairs may take, and how much replacement parts cost from one model to another. 

Your car’s value, its age, and its potential desirability to thieves are all factors that your insurer will take into consideration. 

The area in which you live

If you live in an area where the risk of car accidents is demonstrably greater, this will drive up the price you pay for insurance. 

Such areas tend to be more urban and densely populated, and perhaps have a number of commercial and residential car parks. A particularly high rate of crime will also contribute to higher premiums.

Your claims history and no claims status

This is another really important factor. Insurers use your driving history to get a detailed picture of your experience and how safely you drive. 

The more historical claims that you’ve made, the higher your premiums are likely to be. Most insurers will ask for your claims history dating as far back as five years. 

Many insurers will also ask about your no claims history. If you’ve been driving for some time, and not yet had to make a claim, you are recognised as a safe driver and can be rewarded with a no claims bonus. This typically amounts to an additional discount for every single year of safe driving, up to eight years.

Mileage and other driving habits

Insurance companies need to get a good idea of your mileage and the general times of day you expect to drive. Of course this doesn’t have to be exact, but if for example you expect to only use your car to travel to work and back then this will be factored into your premiums (traffic being worse in ‘rush hour’, the risk of an accident increases). 

You should report your annual mileage to your insurer, whether you’re shopping for a new policy or you just want to renew. It will help them produce accurate quotes that ensure you get what you pay for.

The rising costs of parts, labour, and claims

These are some of the more external factors that influence how your insurance is calculated. The cost of car parts is rising, as are the labour costs associated with hiring experienced mechanics. As these costs rise, so will the price of your car insurance premiums. 

As claims processes have become more sophisticated and wide-ranging, the costs involved have also increased. 

For example, personal injury claims are an increasingly common claim type which more often than not results in insurance company payouts to ensure that the injured party is sufficiently covered. Most insurers payout in such circumstances, and so prices will often increase to cover these increasing payments. 

Medical conditions (but only if you have a restricted license)

If you have a standard driving license without any restrictions, then any medical conditions you have will not be factored into your insurance. However, if you do have a restricted license then all insurers are obligated to take it into account. If it increases your risk profile, then it may drive up the cost of your insurance. 

Some common medical conditions that affect the cost of your premiums include visual impairments, epilepsy and other conditions that induce fits, sleep apnea and more.

Your occupation

Some jobs are classed as higher risk than others, as research has shown that certain professions are more prone to accidents.  For this reason, you may find that your premiums increase according to what you do.

What you can do to reduce your car insurance costs

Although it might seem that there are a lot of factors that insurers need to consider, they practice fair and transparent methods based on the information that you provide. This means that one of the best things you can do to cut the cost of your insurance is provide details as accurately as you can. 

You can also do the following:

  • Compare quotes. With Quidco, you can compare over 100 car insurance providers to find a plan that gives you the coverage you need. There are so many savings to be made by comparing, which we will then supplement with up to £35 cashback.
  • Add a named driver onto your plan. With an experienced driver named on your insurance, you could see your premiums decrease. 
  • Make your car as safe and secure as possible. Whether it means locking your car in a secure garage or installing anti-theft features within the car, your premiums could drop as a result. 
  • Make annual payments. Paying in one lump sum could save you money, as insurers often add interest when payment is made in monthly instalments.
  • Drive less. Not always possible, but, if you can reduce your mileage, this could go a long way in lowering your premiums.

FAQs

What age is best for cheap car insurance?

While you will pay more at a younger age, by contrast you will pay the least amount of car insurance between the ages 50-70. Unless driving and claims history demonstrates otherwise, being older generally means you’re more experienced and safer behind the wheel.

Do I get cheaper car insurance as a woman?

Historically, car insurance was cheaper for women because they have demonstrably less accidents on the road than men.

This was the case up until 2012 when the European Court of Justice (ECJ) made it illegal for insurers to take gender into account when calculating insurance premiums..

Since then, women in general do continue to pay less for their car insurance, but it’s based on a much fairer system than in years gone by. From vehicle choice and occupation to safe driving habits and mileage, insurers look at a range of factors, and women tend to perform favourably by these metrics.

Why is my car insurance so high?

The most common reason for high car insurance premiums are things like a lack of driving experience, a riskier occupation, and high performance vehicles. There are multiple factors that can contribute to this so we recommend you take a look through the factors stated in this blog and see if any of them apply to you. 

Will having modifications made to my car affect the cost of my insurance?

Insurers generally see modified cars as a greater risk because a modified car no longer adheres to the original manufacturer’s specifications (which insurers take into close consideration when allocating cars into their car insurance group). If your car has been modified in a way that influences acceleration, speed or desirability, then you will certainly see your premiums increase. 

You should disclose any and all of your car’s modifications to your insurer so that they can build it into your quote. If you do not share such information then your policy will be invalidated.

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