Your car insurance premium explained

Find out how we work out the cost of car insurance

How insurance works

We use a number of factors to work out the price of your insurance. There are personal factors, like the type of car you drive, your age and where you live – these can impact how likely you are to make a claim. And there are external factors, like changes in legislation, the cost of parts and labour and the rising cost of claims. 

Your premium is pooled with other policyholders’ premiums, and if you make a claim, we pay it out of that pool. If many people claim at once, the money in the pool has to go further, which means prices go up. 

Your age and how much experience you have behind the wheel

Our experience shows that younger drivers are more likely to be involved in accidents and make claims than any other age group. The older and more experienced you are as a driver, the less likely you are to claim (until you get into your late 60s / early 70s when the risk starts increasing again). This is reflected in the price you pay.

The car you're looking to insure

It'll come as no surprise that the type of car you drive affects the cost of your premium...

Large, powerful cars are usually more expensive to insure, because the cost to repair or replace them is higher. Low powered cars, or cars with safety features like autonomous emergency breaking (AEB), are often cheaper to insure because studies show that they're less likely to be involved in an accident. 

The number of cars you insure on the same policy also has an effect on your price; we offer a discount when you buy multi car insurance.

Where you live

Your neighbourhood has a bearing on the cost of your car insurance. Normally, in areas where the risk of accidents is greater (typically more urban and population dense areas), you’ll pay more. The same applies if you live somewhere which has high levels of vehicle crime.

When and how far you drive your car

If you use your car for business purposes, you're likely to pay more for cover, as you'll be driving more when the roads are busy. Your annual mileage is also an important consideration. After all, the more you drive, the more likely you are to be involved in an accident.

Whether or not you've built up a no claim discount

If you don't make a claim on your insurance, it's seen as a sign that you're a safer driver and so you're often rewarded with a No Claim Discount (NCD) each year. The more NCD you have, the better your price. If you do have any claims or driving convictions then this will be reflected in the price you pay.

Changes in legislation or regulations

Legislative and regulatory changes can have an effect on the price of your car insurance premium. Take the changes to the personal injury discount rate - or Ogden discount rate - announced in February 2017. The legislation means insurers now have to pay out bigger lump sums for personal injury claims. This has meant an increase in annual premiums.

Changes in taxation imposed by the government can also affect your price: Insurance Premium Tax (IPT) is a tax on general insurance premiums and has increased incrementally since it was introduced.

The rising costs of parts and labour

Just like everything else, the cost of car parts and employing skilled mechanics to repair damaged cars is going up too. Naturally, this has a knock on effect on the price of your insurance premium.

The rising cost of claims

Millions of claims on car insurance policies are made every year.

As cars become more and more sophisticated, the costs of parts, labour and the expertise needed to repair them goes up. But the cost of a personal injury claim is even more expensive than 'bent metal'.

Making sure someone injured in a car accident receives enough money to support them during their recovery is important. As most insurers pay out the majority of the premiums you pay in claims, prices have to go up to cover these costs.