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How Do They Come Up With Car Insurance Premiums?

Insurance Costs

Even if you don’t drive you couldn’t have missed the fact that car insurance premiums have risen by 40% this year! Virtually every website, TV Company and Newspaper has been complaining about the costs.

Car Insurance rates and premiums are now being investigated by the UK Government.

So how do they come up with car insurance premiums?

The price of insurance especially car insurance is always an active subject. The television ads are crammed with insurance companies and comparison sites fighting for more business saying that there product is cheaper or better value than their competitors ,but how can they do this surely a car is a car ?

Car premiums are calculated using many factors with additional loads and discounts there are more than thirty. Many people think it is just the car they drive that sets the rate, in fact the major differences in prices comes from an assessment of  the driver risks.

The major rating factors that constitute the rate are:

The type of vehicle
The type of vehicle provides the insurers with details of engine size, car capabilities, seating capacity and from historical claims records the frequency and cost of past claims relating to that type of vehicle. They can also establish from their approved repairers the cost to repair and labour costs specific to that type of car.
All modifications should be advised to your insurance company as this can affect the value of your car and you may find that your policy is not suitable for your car in its modified state.

Mileage
This question allows them to ascertain the chance of you having an accident
As well as your driving experience it gives them an idea of your frequency to have an accident and the times that you are driving.

Location
Location of where the vehicle is parked over night is a rating factor. Inner cities can impose higher premiums than in rural areas.

Details about you
They will ask what connection you have to the car. Are you the main user? The main user maybe a younger driver and so this will have an affect on the price and excesses being charged.

Sex
This used to be rating factor for some insurers, but now due to legislation does not apply.

Age
Your age ascertains your driving experience and knowledge. The insurance company can look at their claims records and ascertain the amount of accidents from drivers of certain age groups. If you are a young driver you should check your policy document for additional excesses which apply. This is also applicable to inexperienced drivers.

Occupation
Your occupation provides your insurer with some idea of your driving lifestyle and it can be loaded or discounted for certain occupations.

Convictions
This gives the insurance company an idea of your moral code. It may mean that they will refuse you cover or they could impose a hefty loading to the premium or excesses that apply. It is all dependent on what the conviction was and whether it can affect your driving or propensity to claim.

Excesses applied
Some excesses are imposed for example inexperienced or young drivers.
Other excesses applied are voluntary. If the excess increases you are taking on more of the risk yourself and so the insurance companies can lower the premium as it removes the chance of many small claims which are time consuming and expensive to manage.

Car Insurance premiums are individual and will be different for each person and vary from company to company.

Given that there are so many rating factors involved in creating a car insurance premium, Car Insurance Blog is surprised that Car Insurance Companies can impose a 40% premium hike across the board and would be interested to know how they’ve actually applied this to the rates, especially as they were all recently reprimanded by the OFT for real-time price fixing!

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