How are insurance prices calculated?

Everyone wants to get the best deal on their insurance, but how much should you be paying? A lot of different factors are taken into consideration when we calculate the price of your insurance, but what are they? Here are some of the factors that your insurance provider will look at when calculating your insurance premium.

All insurance prices are based on what is called ‘risk’. When you get a quote, an insurer will take all the details you’re asked to provide and look at how they affect the chances of a claim being made. But what is ‘risk’?

One example of risk is your address. The insurer will take the address provided and look at accident and crime rates in that area. They will also look at whether the vehicle make/model is more likely to be stolen or vandalised.

Other examples of risk include:
  • Age – younger drivers are often seen as a higher insurance risk due to their inexperience
  • How powerful the engine is – large engine sizes, turbo engines and more powerful vehicles are often considered high risk by insurers. This could be because they can accelerate faster, and reach higher top speeds, which could result in a more severe accident.
  • No Claims Discount – having a high amount of claim-free years will help reduce your risk
One thing you can be sure of is that your premium won’t be affected by your gender, as insurers are no longer allowed to use that as a factor when calculating risk.   
 

My friend’s insurance is cheaper than mine, but we have the same car and they’re younger than me!


This will come down to the risk and the insurer. If your friend lives at a different address, has a different job, their use of the car or mileage is different to yours or, they have named drivers on the policy then they will be perceived a very different risk. Even though one factor - such as age - seems to be considered a high risk, their other details could be seen as lower risk by their insurer. For example, they could have a higher number of claim-free years, giving them more No Claims Discount. This means that overall the insurer has concluded the risk to be low enough to offer them a cheaper price.

Posted on March 10, 2020


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