How are car insurance premiums calculated?

5 minutes

Whether you’re meandering through city streets on a Monday morning for work, or setting off down unknown country roads, there are a few things you won’t get far without.

Your keys, a tank of fuel or charged battery, and a sing-out-loud Spotify playlist are essential, and so is car insurance.

Car insurance is a legal requirement for anyone driving in the UK, but when buying a policy there are many things to consider, from the cover offered to optional extras like breakdown and a courtesy car. Most important among these for many drivers, however, will be the price of the policy. 

It’s only natural that when shopping around, you look for the best deal, but doing so can be confusing. If you’ve ever been on a price comparison site, you’ll know just how much prices can vary between insurers, and you’ve probably wondered why that’s the case and how car insurance is calculated.

In this guide, we’ll look at what affects the price of your car insurance and how each factor can impact what you pay, to help you keep your payments down.

What is the average cost of car insurance? 

Research suggests the average cost of car insurance in the UK is around £416 per year, based on data from the Association of British Insurers for the first quarter of 2022. But that doesn’t tell the whole story. Thanks to a range of factors insurers have to take into consideration, prices can vary massively from driver to driver and no two car insurance policies are the same. 

Even two people driving the same model of car may see differences in their premiums and cover for all sorts of reasons. The different ways car insurance is calculated means drivers could pay as little as a couple of hundred pounds, all the way up to a couple of thousand. 

Some of the factors that impact the cost of your car insurance may be out of your control, but not all of them are. Things insurers take into consideration when calculating prices include: 

  • Your vehicle’s model and specifications, including things like sports models, performance enhancements and trims.
  • Any named drivers on your policy, whether that’s a partner, a parent or another family member.
  • Any points on your licence
  • How long you’ve had your licence.
  • How many years no claims discount you have from your previous insurer.
  • Your occupation can also affect car insurance prices. 
  • Your total payable excess, made up of both voluntary and compulsory excess.
  • The level of cover on your policy.

Any additional services and extras on your policy can also effect how much you pay, particularly as many are optional add-ons. With Flow Annual Car Insurance, however, you get motor legal expenses and guaranteed hire car included as standard.

When you consider all these different car insurance factors, it’s easy to see why prices vary. Like a fingerprint, no matter how similar two may look, your car insurance premium is entirely personalised to you. 

Does the type of car you drive affect car insurance cost? 

It goes without saying that the type of car you choose to drive will affect the cost of your insurance, whether it’s because of engine size, power or the perceived risk of theft. A Ferrari, for example, will probably cost more to insure than a Fiat Panda, and there are several reasons for that.

Insurers use car insurance groups to determine how the type of car you drive impacts the price of your premium, with all cars falling into one of 50 groups. Generally, the more expensive, powerful, and rare your vehicle, the higher the insurance group it will fall into, and the bigger impact it’ll have on the cost of your premium.
Factors that affect car insurance group placement include the likelihood of an accident (statistically speaking), the size of the car’s engine, how much it would cost to replace, and the average price of parts and repairs for your specific vehicle. 

How do driving convictions and points impact the cost of insurance? 

Whether it’s a speeding ticket or a charge of driving without due care and attention, driving convictions can affect your car insurance price. Points handed out for convictions can stay on your licence for a minimum of four years too, so they can have a long-lasting impact. 

Some examples of convictions that could affect your premiums include:

  • Drink & drug driving convictions
  • Speeding convictions
  • Driving without due care and attention
  • Dangerous driving

Convictions still in process, along with unspent convictions, are considered during pricing, so you should inform your insurer if you have these on your licence. However, spent convictions that have expired may not need to be disclosed. 

Convictions could also affect your insurance if they belong to a named driver on your policy.

What other factors affect car insurance rates?

There are other factors that affect car insurance rates. Many of these will be taken into consideration during the application process, when insurers will ask you for additional information, including: 

  • Your address and where you keep the car overnight, as some areas have higher claim rates than others. Keeping the car in a garage or on a driveway can lower prices when compared to parking on the road, too. Insurers look at things like how busy the area is, crime rate and driving behaviours.  
  • Security devices, such as car alarms and immobilisers, can lower your premium as they reduce the risk of theft.
  • Your occupation. People in high-stress jobs, or who travel and work at unsociable times, may be affected. This can also include the risk of parking at schools or hospitals, as they are more prone to traffic and scenarios like the school rush. 
  • Your usage. Those who only use their car for the weekly shop may find they pay less than someone who commutes daily, or who uses their vehicle to travel for business. 
  • Your mileage per year can affect your premiums. Simply put, the more you drive, the higher your premium may be.
  • Any previous claims made may increase your premiums in subsequent years.

Millions of claims on car insurance policies are made every year. As cars become more and more sophisticated, the costs of parts, labour and the expertise needed to repair them goes up. But the cost of a personal injury claim is even more expensive than 'bent metal'.

Making sure someone injured in a car accident receives enough money to support them during their recovery is important. As most insurers pay out the majority of the premiums you pay in claims, prices have to go up to cover these costs.

Types of insurance policy

There are also a range of different cover types to consider, all of which can impact the price of your insurance. These include: 

  • Comprehensive – Cover for repair or replacement of your own car as a result of damage or loss.
  • Third-Party Fire and Theft – Cover for damage caused to someone else’s vehicle in an accident, or your own vehicle as a result of theft or damage by fire.  
  • Third-Party – Cover designed to pay for damage caused to someone else’s vehicle in an accident

If you’re looking for rolling monthly cover without interest charges, admin or cancellation fees, see what Flow Monthly car insurance can offer you. If it's flexible, year-round cover you need, take control with  Flow Annual car insurance – customise your policy at the touch of a button, 24/7.