How insurers set your premium
The cost of motor insurance varies significantly from driver to driver.
It is always worth shopping around to find the best deal for you.
Insurers use a wide range of factors to calculate the cost of your premium, including:
- your age
- your occupation
- your insurance claims history
- the number of accidents and level of vehicle crime in your local area
- the type of vehicle you drive
- where you store your vehicle at night
- if your vehicle is fitted with an alarm or immobiliser
The ABI’s publication ‘Lifting The Bonnet on Car Insurance’ explains how insurers set your premium and what it pays for.
There is more information on why and how insurers use your age to set your premium here.
Think about
It is important to consider other factors as well as cost when buying motor insurance – never take out a policy based on price alone.
- what type of policy best suits you
- do you need to include any named drivers on your policy?
- will you need extra cover if you take your vehicle abroad?
- will your policy cover you if you rent a car or other vehicle?
How to cut the cost of motor insurance
Motor insurance can be expensive – but there are a few things you can do to cut the cost of your premium.
Shop around
The cost of motor insurance varies from company to company. Compare quotes from different insurers to get the best deal. You can contact companies directly or through an insurance broker via the British Insurance Brokers' Association (BIBA). You can also compare premiums on a price comparison website. (But remember, do not buy on cost alone – make sure that the policy covers everything you need it to.)
Secure your vehicle
Insurers often offer discounts for vehicles fitted with security devices such as alarms or immobilisers – your insurer can tell you which devices they approve. Leaving your vehicle in a garage overnight, rather than out on the street or in your driveway, may also reduce the cost of your premium.
Pay a higher voluntary excess
By paying a higher excess – a fixed amount of any claim that you agree to pay yourself – you may be able to get a reduced premium.
Limit your vehicle's use
Insurers will ask you to declare your annual mileage. By reducing your overall mileage, you can therefore reduce your insurance premium.
Including ‘business use’ cover as part of your policy can also push up your premium. By limiting your vehicle's use to domestic, social and pleasure only, you can keep the cost of your insurance down.
Pay your premium up front
Paying your premium in one go at the start of your policy period is usually cheaper than paying it in weekly or monthly instalments.
Drive a lower powered car
Your vehicle's engine size is one of the factors insurers use to work out the cost of your premium. Vehicles with lower engine capacities are cheaper to insure than high-powered vehicles.
The insurance industry uses a system known as ‘group rating’ to assess the likely insurance costs for different vehicle models. This is administered on behalf of the industry by Thatcham Research. You can find more information on the group rating process on Thatcham’s website.
Sign up for 'pay how you drive' or ‘telematics’ insurance
Your insurer may offer a ‘pay how you drive’ policy, often known as ‘telematics’ or ‘black box’ insurance. These types of insurance policies use GPS technology to measure things like your speed; distance travelled; the time of day you drive; what kinds of road you usually use; and how you brake and take corners. If you able to get a good ‘driving score’ your insurer may offer you a reduced premium.
For more information see 'pay how you drive' motor insurance.
Build up a no claims discount
Your insurance claims history (how many claims you have made on your policy) affects the price of your motor insurance premium. If you have a claim-free record your insurer will reward you with a no claims discount, which builds up with each claim-free year. No claims discounts vary from insurer to insurer, but they can be as much as 30% for one claim-free year and 60% for five claim-free years. Shop around to find the best deal for you.