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An introduction to car insurance

We insure our most valued possessions to provide cover against certain risks, such as damage or theft. This introduction to car insurance aims to provide readers with a better understanding of why the industry exists and how it works.

Car insurance differs from other types of insurance only slightly in that – at its most basic level – its purpose is to provide cover to other parties involved in an accident you might have caused in your vehicle.

For a fee, called a premium, your car is usually insured for a year and must then be renewed – an expensive burden. Insurance companies, therefore, offer certain different levels of cover to help mitigate these costs, and offer discounts for careful drivers who have never claimed.

Why do I need car insurance?

While other types of insurance, such as home and contents and life, are not always compulsory – car insurance is. Why is this?

A car can become an object capable of massive damage and threat to life as soon as the ignition key is turned. You may consider yourself to be the most careful driver on the road, but one lapse in concentration is all it takes. Indeed, insurers had to fork out around £50 million in damages to victims of the Selby rail crash after Gary Hart fell asleep at the wheel of his Land Rover and ploughed off the M62 and on to the East Coast Main Line in North Yorkshire.

In the five years to 2018 there has been an annual average of 122,000 road traffic accidents reported in England according to data from the Office for National Statistics. In 2018, nearly 123,000 vehicles were involved in accidents on British roads.

Car insurance is mandatory so that the victims of these accidents can be compensated – for both damage to their vehicles and injury to the people inside them – often without the need for expensive and time-consuming legal representation.

What happens if I don’t have car insurance?

It is likely you’ll be found out. Even if you own a car but don’t drive it, you need insurance unless you have somewhere on private property to park it and declare with the Driver and Vehicle Licensing Agency (DVLA) a statutory off-road notice.

The Department of Transport believes there are around 1.5 million uninsured drivers on UK roads and in 2018 more than 79,000 of them were caught. A fine of £300 is the norm, unless it’s a severe case and is taken to court, where much higher fines can be ordered. Similarly, six penalty points on the driving licence is standard, but courts can order the driver to be disqualified.

The Motor Insurers' Bureau (MIB) was established in 1948 and its key activity, through its Motor Insurance Database (MID) is to identify uninsured drivers. Every car insurance underwriter is obliged – under the 1988 Road Traffic Act – to be a member of the MIB and contribute to its funding.

What different types of car insurance are available?

There are three basic types of car insurance sold in the UK.

• Comprehensive
• Third party, fire and theft
• Third party only

Comprehensive

Often called "fully comprehensive", or just "fully comp", this type of car insurance offers the broadest level of cover.

Not only does it cover your liability to other parties in an accident you caused, it also covers damage to your vehicle and injury to the people inside it.

There are hundreds of car insurers in the UK and their comprehensive policies will differ in a hundred ways. When choosing an insurance policy, look carefully at what benefits they offer as standard under their comprehensive cover plans.

The first car to be insured was covered under a maritime policy issued by Lloyd's of London and the vehicle was considered to be a ship navigating on land.

Third party, fire and theft

Sometimes shortened to TPFT, this covers your liability requirements to other parties involved in an accident you caused – such as injury costs, vehicle damage and compensation claims.

It also provides you cover – up to the value of the vehicle – should your car be stolen, or damaged in a fire.

It will not cover you for damage to your vehicle or personal injury to yourself in an accident with another vehicle, no matter who was responsible.

If your car is damaged or you and your passengers are injured and it was not your fault, any claims will be made to the insurer of the liable party.

Third party only

This is the most basic type of cover that is offered in the UK, and it is not offered by all insurance companies. It provides cover only for your liabilities to other parties involved in an accident you caused.

How does car insurance work?

In the next few sections we’ll take a deeper look into the car insurance industry and examine such details as:

• Broking and underwriting
• Risk assessment
• Insurance premiums and how they differ
• The policy and what it covers
• Making a claim

First motoring death
Personal injury cover is now a standard facet of car insurance, but the first person to be killed by a car was Mrs Bridget Driscoll of Croydon, who was run over by a Roger-Benz car being driven in Crystal Palace at 4mph in August 1896.
- BBC News Magazine

The car insurance company – brokers and underwriters

There are basically two types of insurance companies – brokers and underwriters – although many now act in both capacities.

Insurance brokers

A broker is a commercial entity who works as an agent selling insurance policies on behalf of other companies. The broker may be the representative of just one company, or may sell policies on behalf of several insurers.

Brokers are responsible for commercial activities, such as promotion and winning new clients, as well as servicing the needs of policyholders – dealing with queries and claims.

Insurance underwriters

Underwriters are more usually companies, but can be a single person or consortium, whose responsibility it is to assess the risk factors behind insuring someone’s property or liabilities. Based on these risk factors, they then work out the cost of the policy – the premium.

In the context of car insurance many underwriters now have their own brokers, so in essence the brokerage and underwriting business is all under one roof.

And in the modern era of insurance, most underwriting decisions are now made instantly as all the risk factors are run through a computer algorithm that sets the premium.

Cars galore
In 2017, there was nearly one car registered for every two people in the UK – that's 31.2 million cars on British roads, and 20 million households with motor insurance.
- Statista

What is an insurance premium?

Quite simply, the premium is the price you pay for your insurance policy. Insurance companies pool together all the premiums from all their policyholders and this forms the pot from which all subsequent claims are settled.

It is also known as a "risk premium", because it is based on various factors that the underwriter considers you pose as a risk to making an insurance claim.

The insurance company does not want you to make a claim – it wants to keep that pool of premiums for itself. So, given the opportunity, it would sooner just insure careful drivers who have never had an accident. But it accepts that statistically, even the most careful drivers sometimes make mistakes.

It can, however, make sure that those who are statistically more likely to make a claim on their car insurance policies have a bigger weighting within that pool of premiums. Simply put: the bigger the risk, the bigger the premium.

The car insurance company – assessing the risk

Car insurers gather data – these days from your online quote application – to assess certain risks based on details about the car to be insured and the person, or people, who will be driving it. And remember – you must be honest about all the answers on your quote application otherwise your policy will be invalid.

The car – what make and model and the year of manufacture?

This is important because the more exotic or newer the car, the more expensive it is to replace if damaged beyond repair (written off). Some cars are also complex and difficult to repair and this too makes them more expensive to insure.

The car – how powerful is it?

A bigger engine, turbocharged, speciality sports edition, funky sports exhaust, tuned motor. All such things must be declared, and the faster your car is capable of moving – the faster you are likely to drive. That’s what the underwriter sees, and your premium will reflect this.

Sportsmen fall foul
It is not a myth that Premiership and other professional footballers and top sportsmen are considered to be among the riskiest occupations to insure. They tend to be young men, spending their generous salaries on high-powered sports cars. Many conventional car insurance companies will not touch them, and they must arrange their car insurance through specialist underwriters.

The driver – annual mileage?

Statistically, the further and more frequently you drive your car, the more likely you are to have an accident in it.

The driver – car usage?

What do you use the car for? Standard policy cover is for a category of usage called social, domestic and pleasure (SDP) – basically, just popping out to visit friends, run the kids to school, shopping and other daily tasks.

Add commuting to this (SDPC), and your premium goes up, as it is assumed that you’ll be driving more often and at the busiest times of day. A further class may be needed if you travel in your car as part of your business – (SDPC + business).

The driver – age and experience?

Age is a sensitive issue – particularly for young people seeking to insure their cars. The younger and more inexperienced the driver, the greater the premium. Some newly qualified drivers can pay thousands for car insurance – premiums that, given their age, they can barely afford.

The driver – male or female?

Women are statistically less likely to make a car insurance claim. Research by Confused.com in 2017 showed that claims from men outnumbered those from women by nearly two to one. And in all the major categories of driving offences – drink driving, speeding, uninsured – there are more men than women.

When women do claim, the cost of repairs and personal injury payments are also generally lower than for men.

While an EU gender directive in 2011 ruled that price discrimination based on gender breached rules on equality, women continue to pay – on average – lower premiums than men. This can be down to other factors: for example, men are more likely to own pricier cars or do jobs that, statistically, have more claims.

The driver – occupation?

Some occupations are considered more risky than others. At the top end of the risk spectrum, are Premiership footballers: notorious for crashing hugely expensive sports cars and driving up premiums for the rest of us.

Other higher-risk professions include, journalists, lawyers, members of HM Forces, bookmakers and entertainment industry professionals.

Some are considered risks because they may be targets for vandalism, some because they are more likely to be driving under pressure of deadlines or having consumed alcohol.

Football's worst drivers
Pierre-Emerick Aubameyang – pranged his £270,000 Lamborghini on the M25 in November 2019. He also owns a £1 million Ferrari capable of reaching 217mph.
Cristiano Ronaldo – crashed his £200,000 Ferrari into a tunnel wall just outside of Manchester in 2009.
Jeffery Schlupp – while playing in Leicester City's 2015-16 Premiership winning season, he crashed his £190,000 Lamborghini on the M1.
Michail Antonio – Christmas 2019, dressed as a snowman, the West Ham winger crashed his £190,000 Lamborghini into a London family's home. No one was hurt.

Learning the lesson – footballers and Lamborghini's don't mix.

The driver – previous convictions?

If the driver has any driving bans, endorsements or points on their licence the premium will be higher. Prison terms for non-driving offences can also negatively impact the premium.

The driver – any health issues?

Some underlying health issues, such as strokes, must be declared and can possibly affect your premium.

The driver – ever claimed on your policy?

If you can prove to your car insurance company that you’ve never claimed on a policy, you’ll be considered less of a risk and, therefore, get a cheaper quote for your premium.

Some insurers may go back over your entire driving history, others may only count the previous nine years during which you made no insurance claim. This benefit is called the "no claims discount", or "no claims bonus".

Location – where do you live?

Some areas are considered a greater risk than others. Cities remain the most expensive places to insure a car as much of the risk assessment is based on local crime rates.

But don’t be fooled into thinking that a quiet rural location necessarily means a lower premium. These areas are full of narrow, winding lanes occupied by tractors and huge 4x4s.

Location – where do you park?

Many insurance quote forms will ask if you park your car in a garage overnight, or on a private driveway, or on the street. A more secure the parking location will generally give a little discount off the premium.

Car insurance premiums can differ wildly in price

We’ve seen above what risk factors insurance underwriters consider when calculating premiums, and how they affect price, so let’s examine what some of these differences can mean:

Rising costs
The average car insurance premium has risen 5.5% to £829 in the past year, driven higher by rising claims costs as newer cars, which are more expensive to repair, replace older models.
- Consumer Intelligence car insurance index, March 2020

Why is my premium so high because I’m young?

Of all the risk factors mentioned above, underwriters consider youth and inexperience to be the riskiest. The Consumer Intelligence car insurance price index for March 2020, calculates the average price for premiums for drivers below the age of 25 is £1,795. This compares with the overall average premium of £829 and an average of £402 for over 50s.

The good news is, that premiums can come down rapidly as you demonstrate year-upon-year of careful driving with no claims on your policy.

There are also an increasing number of insurers offering telematics – or "black box" – insurance schemes that offer rewards for careful young drivers. The Consumer Intelligence car insurance price index suggests 61% of the cheapest quotes for under 25s were telematics products. Visit our special page for more information on telematics insurance.

Why am I paying a higher premium because I drive a lot?

Spending a lot of time behind the wheel also puts you in the higher risk spectrum. It may seem a little counterintuitive – you may think your higher mileage gives you greater experience as a driver.

To the car insurance underwriter, however, the more often you drive you are statistically more likely to be involved in an accident and make a claim. So, the higher your annual mileage, the more your premium is likely to cost.

It is important to be as accurate as you can when calculating your annual mileage on your insurance quote. If you overestimate, you’ll likely pay a higher premium, and if you underestimate it could invalidate your policy if you need to make a claim. Look on your car service and MOT records – they should give an accurate account of your mileage in the last year.

Why do I pay a higher premium for living in a city?

Again, it’s the higher risk factor. There is a greater volume of traffic to tangle with and some areas within large cities are more risky because of higher levels of crime. Insurance underwriters examine crime statistics from all over the country – and the higher the crime rates in your area, the higher your premium is likely to be.

The most expensive city to live in is London, where the average car insurance premium is £1,269. Next it’s the north-west, with big cities such as Manchester and Liverpool, with an average premium of £1,073. Here’s the full round up of regional averages from the 2020 Consumer Intelligence car insurance price index:

• London: £1,269
• North-west: £1,073
• East midlands: £906
• West midlands: £888
• Yorkshire and the Humber: £778
• South east: £662
• Wales: £660
• Scotland: £651
• North east: £648
• East of England: £619
• South west: £601

What does car insurance cover?

Third party only insurance covers only your basic liabilities in the event of injury or damage caused to other people’s property when you have an accident in your car. Third party, fire and theft has the additional cover for if your vehicle is stolen or involved in a fire.

Comprehensive insurance comes with a wide range of extra benefits, making the premium pricier than the alternatives. Here’s what a typical comprehensive cover plan might look like:

• 24-hour helpline – to help get you moving if you’re stranded following an accident, and to help get your claim started
• Loss or damage – cost of repairs to a damaged vehicle or cost of replacement if the vehicle is stolen and not recovered, or damaged beyond repair
• Personal accident cover – to cover your, or your passengers' emergency medical expenses or specialist treatment following injury in an accident
• Legal liability – cover for injuries or death to other people in an accident you caused in your vehicle
• Courtesy car – provision of a free replacement car while yours is being repaired, usually up to around 21 days
• Repairs guarantee – any repairs following an accident are guaranteed for five years if carried out by a repair shop approved by the insurer
• Driving abroad – most insurers will offer comprehensive cover for driving in Europe up to a certain number of days during the policy's life

The above usually come as standard in all comprehensive car insurance plans, but shop around for the best deals. Here are some additional benefits that might either be included in you policy as standard, or available as add-ons for an additional premium:

• Additional legal cover or personal injury cover – legal or personal injury costs not covered by the policy, can be added on. These might include recovering the legal costs for a compensation claim or defending you in court against a claim
• Misfuelling cover – this covers the cost of draining your tank if you fill up with the wrong fuel, getting your engine started and providing enough of the right fuel to get you to the next filling station
• Key cover – if you lose your keys, or they are stolen or damaged, they will be replaced or retrieved if locked in your car
• Breakdown cover – if you are not already a member of a breakdown service, this additional cover will get you going, or get you and your vehicle to somewhere safe

The top 10 car insurance companies

Based on Mintel's March 2020 Motor Insurance report, the total size of the UK car insurance market was £12.7bn in gross written premiums in 2019.

The UK’s 10 biggest car insurers controlled nearly 92% of that market. They are as follows:

• Admiral – which also sells insurance through its Bell, Elephant and Gladiator brands has a market share of 18.9% based on £2.4bn in gross written premiums
• Direct Line – trading under parent company UK Insurance, and together with its Churchill and Privilege lines has a 13.2% market share based on £1.67bn in gross written premiums
• Aviva – has a 12.2 % market share based on £1.55bn in gross written premiums
• LV= – which also owns Britannia Rescue, Highway Insurance and Frizzell, has a 9.8% market share on £1.25bn in gross written premiums
• Ageas – has a market share of 8.3% after £1.05bn in gross written premiums
• Hastings – and its InsurePink and People's Choice brands owns a 7.2% market share based on £920m in gross written premiums
• Markerstudy – which owns Zentih and includes the Geoffrey brand, reported £823m of motor GWP, representing 6.5% of the market
• Esure – which also owns Sheilas' Wheels, has a 6.1% market share after £770m in gross written premiums
• Axa – has a share of the market 5.9% based on £750m in gross written premiums
• RSA – formerly Royal & Sun Alliance also sells insurance through its More Than brand and underwrites policies for Ingenie, has a 5.9% market share on £750m gross written premiums

What is a claim and how do I make one?

Once you’re covered by a comprehensive insurance plan you can make a claim direct from your own insurer in the event of an accident, damage to your car by vandalism, or if it is stolen or otherwise destroyed beyond repair. A claim is simply what the insurer will pay you back for the loss that is covered under the policy.

Check your policy to see what is covered – all comprehensive policies differ in the benefits offered.

If you are in an accident and it wasn’t your fault, your insurer will be aiming to claim back its expenses from the other driver’s insurance company, so make sure you do everything you can to prove liability. Here’s a checklist of what to do:

• Take photos of the scene
• Exchange names and policy details with other drivers involved – if they are reluctant to do so, they can be traced through their vehicle number plate
• Get the names and addresses of any independent witnesses
• If the police are called ask for a copy of any report or police statement
• Tell your insurance company about the accident right away

Claims mania
Car insurers paid out more than £16.5 billion in claims in 2016 – that equates to around £23.6 million a day.
- Statista

Most insurance companies now have a claims telephone line and they will take you step by step through the claims process.

What if I’m in an accident and I only have third party cover?

If the accident is not your fault, take all the steps mentioned above, and then contact the insurer of the other driver, giving them details of the accident, witness statements, and the policy details of the driver at fault.

If the accident was your fault, you have no claim.

Most expensive claims

The biggest personal car insurance claim of all time was paid to Blackadder actor Rowan Atkinson after he crashed his McLaren F1 sports car. He was paid £1.14 million and the damage to the car was so severe it took mechanics and body shop specialists at McLaren a year to repair.

Multiple claims from the victims of the Selby rail crash and their families cost insurer Fortis and its reinsurers around £50 million in total costs. The crash happened in 2001 when a Land Rover plunged down a railway embankment from the M62 on to the East Coast Main Line near the North Yorkshire town of Selby, causing two trains to derail.

What if I’m in an accident with an uninsured driver?

Data from the Motor Insurers’ Bureau (MIB) – an organisation that aims to expose uninsured drivers and help compensate victims of them – believes there are around 1 million uninsured cars on the road in the UK, costing honest drivers higher premiums to help the industry mitigate the costs.

If the driver of the other vehicle is reluctant to give any details about their name, address and insurance cover, it’s likely they are not covered. Tell the police straight away, as failure to give insurance information is a criminal offence.

Make sure you get as many details as you can – car registration, make model. Take photos of the scene if possible. Tell your insurance company immediately – they can check the MIB’s Motor Insurance Database (MID) to see if the vehicle is insured.

If you have comprehensive cover, your insurer will pay out – even though it will be unable to recover costs from the other party. If you only have a third party policy, you cannot claim through your insurer, but you might receive some compensation through the MIB – though this process can take many months.

Will my no-claims discount be affected?

If the accident was not your fault and your insurance company can recover your claim from the other driver’s insurer, your no-claims discount should be protected.

You are likely to lose some of it, however, if you make a claim on your insurance for damage or injury sustained in an incident that was your fault, or if any third party successfully claims against your insurance company. Typically, your no claims discount is reduced by two years if you have to make a claim.

Some car insurance policies offer no claims discount protection – mostly at an additional premium. This could allow you to claim up to two times within one year without reducing your no claims discount.

History of car insurance in the UK

Car insurance has been around in the UK almost as long as there have been cars. The first car insurance policies were written in the late 1890s, with Scottish Employers Liability Company known to be among the first to cover against personal accident, damage and third party motor risks.

Coffee house beginnings

Lloyd's of London, whose members are among the hundreds of underwriters of car insurance, started in 1686 as a coffee house owned by Edward Lloyd in the City of London, where marine brokers and underwriters would gather to pass on shipping news. It is now a broker market where insurance underwriters act on behalf of 164 syndicates of individual and corporate members. SwissRe, A history of UK insurance

But during this early period in the history of motoring car insurance was not a legal requirement.

It became mandatory to insure your motor vehicle under the 1930 Road Traffic Act, which – as well as abolishing all speed limits for cars – introduced such offences as dangerous and careless driving.

Today, the law is regulated under the Road Traffic Act 1988 and requires motorists to either be insured or to deposit £500,000 with the Accountant General of the Supreme Court against liability for injury to others and for damage caused to their property.

The UK insurance industry is supported by the Association of British Insurers, which is more than 200 members strong and was formed in 1985 to represent the industry in public policy and regulatory debates, as well as promoting UK insurers at home and overseas.

Thatcham Research, a car insurance industry body launched in 1969, provides the joint ABI and Lloyd’s Group Rating Panel which establishes the insurance group of every private car registered in the UK.

Last updated: 1 October 2020