How is car insurance calculated?

Car insurance premiums are affected by factors such as your age, driving history, vehicle type, location, and annual mileage.

Insurers assess these elements to determine risk and calculate the cost of cover. High-risk drivers and vehicles typically result in higher premiums.

Key factors that impact your premium

Insurance providers analyse multiple variables to assess the likelihood of a claim. The most influential factors include:

• Age and Experience – Younger, less experienced drivers tend to pay higher premiums due to a statistically higher accident rate.
• Driving History – A clean driving record can reduce costs, whereas previous accidents or penalty points increase premiums.
• Vehicle Type – High-performance or expensive cars cost more to insure due to higher repair or replacement costs.
• Location – Living in an area with high crime or accident rates can increase insurance costs.
• Annual Mileage – The more you drive, the higher your risk of an accident, which raises premiums.
• Level of Cover – Comprehensive policies provide the most protection but often come at a higher cost than third-party insurance.
• No-Claims Discount (NCD) – The longer you drive without making a claim, the bigger the discount you may receive.
• Car Modifications – Non-standard modifications, particularly performance upgrades, usually increase costs.

Yes, both no-claims discounts (NCD) and voluntary excess can significantly reduce car insurance premiums.

A no-claims discount rewards drivers for not making claims, while increasing voluntary excess lowers upfront costs in exchange for a higher out-of-pocket expense if a claim is made.

How no-claims discounts work

• Discounts grow over time – The longer you go without making a claim, the bigger the discount, often reaching up to 60% after five or more claim-free years.
• Not all claims affect NCD – Some claims, such as windscreen repairs, may not reduce your discount.
• NCD Protection – Some insurers offer no-claims discount protection, allowing a limited number of claims without affecting your discount.

How voluntary excess lowers costs

• Higher excess = lower premiums – Agreeing to pay a higher voluntary excess reduces the insurer’s risk, leading to lower premiums.
• Combined with compulsory excess – All policies include a compulsory excess set by the insurer, which is added to any voluntary amount.
• Risk vs. Reward – A high voluntary excess saves money upfront but increases costs if you need to claim.

You can lower your car insurance costs by increasing your voluntary excess, maintaining a no-claims discount, choosing a lower-risk vehicle, and comparing quotes from multiple insurers.

Installing security devices and considering telematics policies can also reduce premiums.

Practical ways to reduce premiums

• Increase Voluntary Excess – Opting for a higher voluntary excess reduces the premium, but be sure you can afford it if you need to claim.
• Maintain a No-Claims Discount – Avoiding claims helps build a discount, which can lower premiums by up to 60% over time.
• Compare Quotes Regularly – Shopping around ensures you get the best deal, as insurers adjust rates frequently.
• Consider Telematics (Black Box) Insurance – If you’re a safe driver, telematics policies can offer significant savings.
• Choose a Lower-Risk Car – High-performance and modified cars cost more to insure, while smaller, less powerful cars are cheaper.
• Improve Security – Adding alarms, immobilisers, or parking in a secure location can lower your premium.
• Limit Annual Mileage – Insurers may offer lower premiums for lower mileage drivers.

Yes, modifications can increase car insurance premiums, especially if they enhance performance or affect a vehicle’s value.

Insurers view modifications as added risks, leading to higher costs. Some security upgrades, however, may lower premiums.

How car modifications affect insurance

• Performance Upgrades – Turbochargers, engine tuning, and exhaust modifications increase speed and risk, raising premiums.
• Aesthetic Changes – Custom paintwork, body kits, and alloy wheels can make a car more attractive to thieves, increasing costs.
• Security Enhancements – Adding immobilisers, alarms, or tracking devices can sometimes reduce premiums.
• Lowered or Raised Suspension – Adjusting a car’s suspension affects handling, which insurers may see as a higher risk.
• Wheels and Tyres – Changing wheel size or using non-standard tyres can impact vehicle stability, affecting insurance rates.

Declaring modifications

• All modifications must be declared – Failing to disclose changes can invalidate insurance.
• Some insurers specialise in modified cars – Comparing specialist insurers may result in better rates.

Car insurance premiums are determined by multiple factors, including driver history, vehicle type, location, and insurer-specific risk assessments. Understanding how these elements impact pricing can help you make informed decisions and find ways to lower your costs.

While insurers use complex algorithms to assess risk, policyholders can take proactive steps to reduce premiums. Maintaining a no-claims discount, choosing a lower-risk vehicle, and considering telematics insurance are all effective strategies. Comparing quotes regularly ensures that you are not overpaying.

For younger drivers and those with modified cars, premiums can be higher due to increased risk. However, insurers offer incentives for safe driving, security upgrades, and limited mileage, all of which can contribute to cost savings.

By understanding how insurers calculate premiums, drivers can take control of their costs and secure the most competitive rates available.