What factors determine your car insurance premium?
Have you noticed that car insurance can vary quite a lot for the same kind of car depending on the insured and the insurer? In this blog, we discuss the factors insurers consider when determining what your car insurance premium will be, and what you can do to keep it to a minimum.
Demographic factors play a major role:
Gender and age
Most younger drivers are considered riskier than older drivers who are not only more experienced, but also statistically less likely to cause an accident. Similarly, women are considered less of a risk on the road than men. Statistics show that men generally drive faster and take more risks while driving compared to women who are, on average, more cautious drivers.
Married people tend to be older and assumed to be in a more responsible stage of their lives. Married people are, therefore, deemed to be less risky drivers who are more cautious on the road.
An employee who works in an office for most of the day is less likely to be involved in a car accident than someone whose job involves driving around for most of the day, a sales representative for example.
Insurers increasingly use an applicant’s credit score to establish your risk profile by checking if you are in the habit of paying your debts on time. If you do pay on time, you’re considered less risky.
Certain areas are known to be more dangerous with a higher likelihood for accidents or hijackings. Urban areas also have a higher propensity for accidents due to the sheer number of cars on the road, compared to small towns or rural areas.
Where your car is parked during the day or overnight
Do you park your car on the street during the day and is that area considered relatively safe or unsafe? Or, do you park your car behind a gate or inside a garage at work? Same story at home, at night – if your car is left on the street overnight it will negatively affect your premium, compared to a car that is parked behind a gate or, even better, inside a locked garage.
Previous insurance and claims history
If you have not claimed from your insurer in recent years because you haven’t been involved in an accident, your new insurer will take that as a positive sign that you will – in all likelihood – be a low-risk client for them too.
The car you drive is also a significant factor in determining your risk profile:
New, used or modified
As a new car is worth more than an older car, the value of its replacement cover naturally needs to be higher. A modified car is not only a higher risk due to its higher replacement value, but modified cars are more likely to be driven faster.
Value of car
A high-value sports car, such as a Ferrari or a brand-new BMW, will need more cover than an entry-level car. The size of the engine – 1600, 2l, etc. – and the age of the car are two more factors that contribute to the value of the car, and by extension the insured value and replacement value of the car.
Make of vehicle
Statistically, some cars have a higher risk profile than others. A VW or Toyota for example generally have a lower risk profile than a VW Golf Gti 2.0. This is due to the kind of drivers the Gti tends to attract, i.e. more performance-oriented and so more likely to speed and partake in risky driving.
Type of cover
Comprehensive cover, third party fire and theft or third party only - the kind of cover you require will determine the premium. Whether you add a nominated driver or not is considered too.
Do you have an alarm or immobiliser? Insurers consider tracking devices to be one of the best ways to secure your vehicle.
Statistically, some vehicles are more desirable to thieves and hijackers, for example VW Golf, Toyota Fortuner and VW Gti. This is a factor that insurers must take into consideration when determining a car’s insurance premium.
Lastly, personal driving habits form part of a general assessment to determine your individual driving profile:
What you use your car for, as well as the distances you drive daily and over the course of a year are deliberated by your insurer. A car that spends a lot of time on the road will not only have a higher likelihood of being involved in an accident but also to break down or get a flat tyre which exposes the car to further risk. Where you drive, i.e. how safe the area and roads are, is another important factor.
How long you’ve had your license
If you have only had your license for a few years, you are deemed a less experienced driver with a higher risk. Conversely, if you have been driving for 20 years and have a relatively good record, you are a lower risk to the insurer.
For more information, please contact your Garrun broker who can discuss the precise benefits and exclusions for this type of cover.