Car Insurance

C

ar insurance is considered by many to be a necessary evil - and by an alarming minority to be an unnecessary additional expense! Third party insurance is mandatory. And if you’re young, you probably have a very high premium.

If you’re a teenager and you have car insurance in your own name, I’d like to thank you for subsidising my own insurance!

How Your Premium Is Calculated

Insurance is a numbers game.

You’re betting with your insurance company that you won’t have a claim during the period (ordinarily twelve months) that will cost them more than the expected return from your premium. The premium that you give to your insurance company is typically put into a fund, or “pot,” and invested.

As to how much your premium comes out to be, insurance companies use actuaries to calculate the rates, taking into account a large number of variables including your age, gender, geographical location, driving history and vehicle. Other factors can also help, like how they are tilting their business at that moment. Some insurance companies or brokers will reduce premium rates for younger drivers in an attempt to make them loyal customers, but become relatively more expensive as the risk is reduced.

Factors Influencing Your Premium

Generally, your age and experience are major factors in determining your premium. If you’re young and inexperienced, you’ve a high risk of stuffing the car.

As you get more claim-free years behind you, the insurance company determines that you’re a lesser risk. Then, things like your marital and family status, where you live, what you do for a living and of course what you drive, become more important. Getting married, having kids and moving to a “low risk” area can make a big difference.

As the driver becomes less of a risk, so “background” risks become more significant - these being the factors you cannot control such as the risk of somebody else running into you with no insurance, stockmarket conditions, and the general state of health of the insurance company and the market. When investment conditions are poor, insurance and reinsurance rates typically increase.

No Claims

No claims bonus is a very valuable asset. Although actual figures vary from insurance company to insurance company, typically you can knock off 30% is you have one years no claims bonus. This increases to a maximum of a typical 65% after six years - but if you’re paying an insurance premium of £250 with full no claims, this means that your full premium would be over £700. If you were to lose your no claims bonus, not only will you have a higher premium (through a poorer claims record) but you will also lose that chunky discount.

Fortunately, more insurance companies offer protected no claims bonus, which essentially insures your no claims bonus, or even without this protection, you often only lose two or three years of no claims.

Vehicle Choice

Although insurance groupings are available - and indeed are used in my Datasheet to provide estimates of insurance premiums - these are only advisory. Some insurance companies have favourable, or otherwise, claim records of certain models or makes, and this will influence their premium calculations. This problem was quite acute for the Peugeot 205 and Volkswagen Golf - too many crashed GTIs! It also adversely penalises the entry model BMWs, since seemingly anybody can crash a 316i in winter!

A vehicle’s risk is based on a number of factors including the performance, repairing it, the value, the number of seats, the equipment and badges and, as detailed above, the claims history of that vehicle. Electing for the V6 Ghia-X model rather than the 1·6 entry level “L” will make a big difference to your premium.

How To Reduce Your Premium

Firstly, when it comes to reducing your insurance premium, one thing that you must never do, under any circumstances, is lie. Or “forget to disclose” any relevant information. If you are in any doubt as to what you should or should not tell your insurance company, tell them everything. Some insurance companies insist on this to the letter and I’ve had some great times telling them of the latest modification to Kermit - like the air freshener.

But seriously, failure to tell them of an important detail could result in your insurance being void, and this could get you into a heck of a lot of trouble!

Regardless of your car, as I’ve written above, car insurance is a numbers game. I recommend you contact a huge number of insurance companies to obtain quotes, and play them off against one another. Preparing a sheet with all relevant information is useful, as is some kind of log showing the premium, excess, and other notes that may or may not be useful when deciding who to go for. It won’t come as a surprise to most readers, but I personally use a spreadsheet using QuickSheet on one of my PDAs, probably the m515.

Ring as many companies as you can. Just one or two a day for six weeks is enough - that’ll get you to fifty. It will become immediately obvious as to what companies are simply not interested in your business - they’ll quote you a premium significantly higher than the average. And it’s also quite possibly to find a company who are especially keen in your business, since their quote will be significantly lower than the mean.

On this note, do be wary of quotes that seem too cheap to be true. They probably aren’t. If your typical quote is for £800, and Blagit & Runaway Insurance Brokers quote you just £217, it might just be a con. It’s important to check out the small print - the reputable companies will have no trouble answering your awkward questions, whereas any con artists may well struggle to deliver the goods.

Finally, in conclusion, it does pay to be nerdy about insurance quotes. Some insurance companies consider Americans to be a very high risk driver, including the company I was with when I married Charlie. Overnight, our insurance premium trebled (I knew that this was happening, I pre-empted it by changing insurance companies on my wedding day!). So after some research, I found a company that discounted the premium for married drivers, presumably because we’re safer and don’t do stupid things in our cars /cough/.