How insurers calculate the cost of insurance

There are many factors insurance companies take into account when calculating your insurance premium. But, all of these factors are based on the likelihood of you making a claim – the more you claim, the more your insurer loses. Some are obvious, but some you might find surprising. Let us give you an insight into the workings of the insurance companies.

A fact of life is that there are some people who will naturally pay low insurance premiums on their cars. An insurers ideal customer would be a safe female driver with a small car and a large no claims bonus. But, an insurers dream is not most people’s reality. Nearly every aspect of your life can have an affect on your insurance.

Here are the main things insurers are interested in when calculating your policy:

• postcode – where you live shows how likely your car is to be stolen
• age – if you’re particularly young or old you’re more likely to make a claim
• occupation – if you drive a lot or have a job that means you are in the public eye, your premiums will be higher
• car security – very simple, if your car is secure, it’s less likely to be stolen and you’re less likely to make a claim
• convictions and claims – the more of these you have then statistically you are more likely to make a claim
• mileage – it stands to reason that the more often you’re on the road, the more likely you are to have an accident, your fault or not
• car – if you have a high powered car, you are again statistically more likely to make a claim, and so are more of a liability
• licence – not everyone applying for insurance will have a full UK licence. Insurers will raise premiums for provisional drivers and new drivers. Also, for those with licences issued abroad, it helps to prove residency, as this shows they are used to driving on UK roads
• additional drivers – the more drivers you have on your policy, the more likely you are to make a claim. Also, their driving histories may raise your premium even further
• cover – finally, the cover you choose will affect the cost of your premium. For more information see our article entitled 'What cover can I get?'

While a lot of these points are things you can’t change there are some steps you can take to reduce your car insurance premium. By choosing appropriate cover, making sure your car is cheap to insure and keeping your car secure, you will see your premiums drop. We have lots of articles explaining the ins and outs of car insurance – so if you’re unsure on anything, have a read before you begin looking for a quote.