If you’ve noticed a price increase in your car insurance premiums this year, you may well be wondering what causes these price hikes, and what you can do to avoid paying more for car insurance. Over the past year, car insurance premiums have increased by around 7% - which equates to an extra £35 per driver when compared to premiums in 2016, and £116 per driver compared to 2015.
Personal injury claims are calculated using something called ‘the Ogden Rate’, and in March 2017 there was a major change made to this system. When compensation is awarded to someone following a personal injury claim the amount they are awarded is first adjusted, this is to compensate for the amount of interest the claimant can expect to earn by investing it to ensure that they are never under- or over-compensated.
Until recent months, the Ogden Rate had previously been set at 2.5%. So, for every £100 of loss calculated, the insurer would pay out £97.50, and the claimer would be expected to earn an interest of 2.5% each year, resulting in them receiving the full amount they are due.
However, as of March 2017 the 2.5% discount given to insurers will be reduced to 0.75%, meaning claimants now receive bigger payouts at the cost of their insurance company. Also, the additional hi-tech features now found in many newer vehicles such as digital displays, parking cameras and built-in Satnav systems often means when insured drivers are involved in a collision, the cost of repairs is higher for insurance companies.
The knock-on effect of insurance companies suffering bigger payouts is bigger insurance premiums, which is part of the reason insurance costs have seen a noticeable increase this year. It’s also a real possibility that car insurance costs could increase further. Insurance experts have suggested prices could increase by £75 a year, with premiums for older drivers (65+) increasing by £300 a year, and premiums for young drivers (22 and under) increasing by £1000 a year.
While these circumstantial increases in insurance premiums are out of our control, there are a number of other factors that car affect car insurance cost, both positively and negatively.
Model: Firstly, the make and model of car you choose to purchase will be one of the ultimate deciding factors on how much your insurance will cost. The value of your car is an influential factor, therefore, luxurious or sporty cars tend to be more expensive to insure, while more standard ‘family cars’ with smaller engines are cheaper. However, that’s not to say a cheap old banger will be cheapest to insure, and the condition of the car may well render it as a risk to other road users, and therefore result in higher premiums.
Postcode: The area in which you live will also impact the cost of your premiums. If you register your car in an area with higher rates of collisions or car thefts for example, it will cost more to insure the vehicle.
Parking: Is your car kept on a driveway? On the street? In a secure garage? All of these can have a direct impact on the cost of car insurance premiums, and surprisingly in some cases keeping the vehicle on a well-lit street can be cheaper than in a private driveway!
Nominated Drivers: Adding additional drivers to your insurance policy can affect your premiums negatively or positively, depending on their history. If they are endorsement free and have a ‘safe’ profession, this can help lower your annual cost of car insurance.
Usage: The number of miles you predict you will travel in the vehicle each year can increase or lessen your final insurance costs. Driving more than the UK average will increase the premium, and driving less than the average will reduce the premium. Also, using the vehicle to commute to work will increase the cost, as you will be in heavy traffic more regularly.
Insurance History: This is where your ‘no-claims’ record comes into play. Each year you are insured without making a claim on your car insurance, another year is added to your no-claims bonus. Oppositely, any claims you have made on your car insurance over the past five years are likely to make new insurance quotes more expensive.
Job Title: Insurance companies also consider the job titles of their policy holders when calculating insurance quotes, based on any ‘risk’ associated with certain professions.
Car Security: Ensuring your car has adequate security systems in place such as car alarms, immobilisers, tracking devices and steering-wheel locks can also help reduce the cost of insurance premiums.
Using the factors listed above to your advantage (if possible) when calculating a new insurance quote can help lower your costs, however we have a few extra pointers for those who are looking to score cheaper car insurance.
It’s fair to say there’s no shortage of car insurance companies out there, and the costs from each can differ considerably, so shopping around when it comes time to renew your policy can be hugely beneficial. Be sure to get quotes from multiple insurance companies rather than simply accepting a price in your renewal letter; price comparison websites now make it easy to receive numerous quotes instantly.
Some insurance companies now offer a ‘black box’ which feeds information back to them regarding your driving habits such as speed, times of use and how aggressively you accelerate. The better you drive, the lower your monthly fees will be.
Setting a higher voluntary excess figure will reduce the calculated cost of your car insurance premiums; the higher you set it, the less the quote will ultimately be.
Paying your insurance costs off in one lump sum rather than in monthly installments will always work out cheaper. Extra costs are added to those who pay in monthly installments.
Using these simple tips can help reduce the final quote you get for your next car insurance policy, and will hopefully help you combat the ongoing price-hikes that we’re unfortunately facing this year. Remember, be honest with your information when applying for car insurance so you can be sure you are covered should something go wrong.