How insurers calculate risk

How insurers calculate risk

Insurers look at lots of factors when assessing risk. Insurance companies also each have their own approach to the various categories of risk, so the same driver could be quoted different prices based on identical circumstances. However, there are a few general factors that impact on all insurance policies.…

Your age

Younger drivers are statistically more likely to make a claim on their insurance, and these claims tend to be higher. Claims from young drivers often involve several passengers, pushing up the cost of compensation for personal injury. Insurance premiums are accordingly higher for young people. Age-related risk increases again at the age of 71; drivers above this age pay higher premiums. 

Your postcode 

Insurers look at the likelihood of theft and damage to your vehicle based on where it will be kept overnight. Large cities typically carry a higher risk than suburban or rural areas, although this can vary from postcode to postcode. Insurers keep detailed statistics on claim levels for each area and will adjust your quoted policy cost according to your risk. 

Your historical claims

If you have a record of making claims, your insurer may see this as an indication that you are an unsafe driver or that you live in a risky area. Accordingly, your premiums will go up. The longer you go without making a claim, the more your premium reduces. 

The type of car

The vehicle you drive will be a major factor in determining your insurance cost. Buying a car that is in a low risk group is a great way to reduce your insurance bill, although risk is not always based on power alone. A Mini will be cheaper to insure than a Ferrari, but insurers look at the cost of repair and frequency of claims for each vehicle type, resulting in some variation between insurers.

Your profession

Statistics shows that people in certain professions are more likely to make a claim than others. For example, a DJ working at night in unfamiliar cities is at much higher risk of thefts and vandalism than someone running a B&B who works where they live, therefore cutting out the commuting risk. Some professionals may have high-value passengers, for example journalists often transport high-profile people. Of course, not every driver who is in a ‘high-risk’ occupation is a high-risk driver, and not every driver in a ‘low-risk’ occupation has a spotless driving record. The key here, as with all of the other rating factors is that insurance companies when determining car insurance rates consider many factors and the average performance of each of those factors.

Gender no longer a factor

This is a simple one – it makes no difference to your insurer whether you are a man or a woman. Insurers used to offer lower premiums to women because of their lower risk rating, but the European Court of Justice ruled against this and new laws came into effect in 2012. 

Will risk always be calculated in the same way?

There is no doubt that the way insurers calculate risk will continue to change, especially in response to technology. Many people already reduce their premiums by installing a telematics device, which measures risk factors such as location, harsh acceleration and braking and handling on corners. If the device proves you are a careful driver, your premiums may reduce. This is particularly attractive for drivers in costly high-risk categories, such as young or inexperienced drivers.