1. Introduction

Car insurance is a necessary evil, one of the few types of cover that you are legally obliged to buy. So the less you pay for it, the better.

The bad news is that car insurance has been getting more expensive and is likely to continue doing so.

Norwich Union caused a big stir in August 2006 when it announced that it was increasing the cost of its car insurance cover by 16%, with some drivers likely to see increases of up to 40%. Other insurers have already followed as the cost of accident damage and personal injury claims is rising rapidly.

So, when you next get a renewal notice for your car insurance, you could be in for a nasty shock. It’s not all bad news however, as many companies have decided not to raise their prices. This means shopping around for a better deal makes more sense than ever.

Thanks to the internet, it's easier than ever to search through quotes from rival companies to get cheap car insurance in the UK.

If you are using an online price comparison site like uSwitch you have to supply quite a lot of information, because how much you pay depends on personal factors such as your age, sex, occupation, where you live, what car you drive and whether you have any motoring convictions.

That's because insurance companies partly base their premiums on how likely they think you are to make a claim, and the potential size and cost of any claim. Of course, nobody can predict accidents, but they do complex sums to work out who is more likely to have them.

Younger drivers, for example, are five times more likely to have an accident than a driver aged 35 or over, and are therefore punished with far higher premiums. Some insurers won't touch them at all. And here's a blow to male pride: contrary to the outdated stereotype of women as rotten drivers, they have a better motoring record, and grateful insurance companies reward them with cut-price rates.

The flashier your car, the higher the repair bill. So you pay less to protect a Vauxhall Vectra than a whizzy BMW. If your taste in motors runs to a flash sports car, the cost of cover can quickly go through its soft-top roof.

Premiums will also depend on other factors, such as how many miles you drive each year (the more you drive, the greater the chance of a crash), where you park at night (it's safer in a garage than on the road), and whether you have fitted any security measures to deter thieves (yes, they do work).

Different insurance companies can give the same driver wildly different car insurance quotes. Why? Insurers make their money by collecting premiums from hundreds of thousands of customers, and paying out benefits to the relatively small number who make a claim. They aim to collect more in premiums than they pay in claims, to cover their costs and make a profit. It is slightly more complicated than that, but that's the general principle.

Every insurer employs a team of underwriters to assess the risk of insuring a particular car and person, and price their policy accordingly. Underwriters are human beings, contrary to rumour, and each has a different view on how risky you are likely to be on the road. That's why they want to know all that personal information. So they know how much to charge you.

Insurance companies also decide how much profit to make on each customer – new entrants looking to build market share often shave their margins to attract new customers. Some insurers deliberately set sky-high premiums to certain categories of motorists, such as younger drivers, to steer them away.

Online car insurance search engines put you in the driving seat. You no longer have to find a broker on the high street or spend hours telephoning tons of different companies to compare quotes. Best of all, you only have to supply your personal details once to get quotes from a range of different insurers.

There are three main types of car insurance:

• Third party is the absolute legal minimum, which covers your liability for personal injuries to other people, including passengers in your car, and damage to other people's vehicles. If you bump into somebody's car, your insurance pays for their damage, but not your own.
• As its name suggests, third party, fire and theft will also pay up if your car catches fire or is stolen. Don't think your old banger isn't a target for thieves – cars between 12 and 14 years old actually have the greatest risk of being stolen.
• Comprehensive covers every party for damage or personal injury, including the policyholder, regardless of fault. It also covers fire and theft. Policies may also cover loss or damage to personal effects left in the vehicle, within set limits, and may include personal accident benefit in case of death or specific permanent disability.

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