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Car insurance costs explained

  • 4, Feb 2022
  • Read time: 8 mins

This guide is created to help you understand what your costs might be so you can get car insurance that suits your needs. Even the smallest detail can have a big impact on how much you pay. The more you understand how car insurance is calculated, the better you are at finding the right deal.

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For example, in the UK the cost of car insurance experienced a significant drop during 2021 when the average (comprehensive) policy fell to £430. This, however, doesn’t mean your car insurance premium should be the same, or close to this figure.

Why car insurance costs vary by region

Where you live is important to how your car insurance is calculated. Urban postcodes, for example, will present different levels of risk from their rural counterparts. The premium you pay will be affected by:

  • Crime levels
  • Population density
  • Traffic density
  • Local claims for personal injury
  • Local accident rates
  • Fraudulent accident claims.

How car insurance costs are affected by age

Age is also a consideration when establishing the average cost of car insurance. Reports show that young drivers aged 17-24 years old are far more likely to be involved in accidents than drivers aged 25 and older. While young drivers, therefore, are more likely to make a claim, this can make their car insurance more expensive than older drivers.

    If you’re aged 17-24 check out SMART WHEELS young driver insurance.

    Does gender make a difference to car insurance costs?

    In 2012 the European Court of Justice ruled that insurers could no longer cite gender as a basis to calculate car premiums.

    Although insurers do not use isolated gender-based valuations, they still gather detailed data from multiple sources. Once all the details are analysed, if male drivers present more of a risk than female drivers this may be attributed to:

    • Their choice of car
    • Their jobs and associated risks
    • Usage (average yearly mileage, driving during unsociable hours etc.)

    What affects your car insurance price?

    2022 Financial Conduct Authority (FCA) pricing rule changes

    The FCA has brought in new pricing rule changes that affect the entire car insurance market.

    In a nutshell, if you’re an existing customer, you won’t pay more than a new customer for an equivalent policy. That’s because, while some people shop around for the best deals, other customers don’t. This was judged to be unfair on existing customers who get one price when they renew their car insurance, while new customers could get a better deal by shopping around for lower-priced deals.

    So, while some people will see lower quotes since the new regulations were implemented on 1 January 2022, others may not, and some might not see much change at all. We’ve created a guide and FAQs with all the details plus some handy FAQs as well to give you all the facts.

    Your driving behaviour

    A person with 5 years no claim bonus will present less of a risk than a driver with multiple accident claims plus three points on their licence. Always drive safely and within the legal limits.

    Personal injury claims such as whiplash

    The Association of British Insurers (ABI) states over 1,500 whiplash claims are made in the UK as a result of road accidents every day. This results in £2 billion costs to the insurance industry, adding £90 to the average annual motor premium.

    However, since new rules on whiplash claims came into force in May 2021 the government hopes that the reforms will create savings to drivers worth a total of £1.2 billion.

    This new system should mean:

    • Legitimate claims are easier and quicker to deal with
    • Fraudulent cases are more likely to fail
    • All drivers benefit from drops in their car insurance.

    Accidents involving uninsured motorists

    Each year, thousands of people are killed or suffer personal injuries resulting from hit-and-run or uninsured drivers.

    Uninsured drivers present a risk to everyone’s car insurance premium. If you’re involved in an accident with an uninsured driver the resulting claim is paid out from a central fund contributed to by insurers. More claims involving uninsured drivers will mean more money is paid out from the fund. As a result, insurers raise premiums to meet the deficit.

    To reduce your car insurance costs, remember:

    • If you’re a young driver aged 17-24 try black box insurance to keep average costs low
    • Setting a higher excess fee could help to lower your premium
    • Consider reducing your average annual mileage to lower your level of risk
    • Check with your insurer before modifying your car
    • Read our guide on how to reduce your car insurance costs.

    Make sure you're getting the right deal on your car insurance.

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