How is my car insurance premium calculated?

We want to be as transparent as possible when it comes to car insurance pricing which is why we want to explain that the cost of your car insurance is based on risk, how likely you would be to have a claim and how substantial any claim could be.

What are some of the things that can affect your car insurance premium?


Every postcode has its own insurance rating and where you live can influence your premium. For example, if you live on a main road, your car insurance typically would have a different rating than if you lived in a quieter area. Crime rates and areas which have a greater risk of accidents are also taken into account when rating your address.

No Claim Discount (NCD)

If you’ve managed to build up your NCD, this is a sign that you could be a careful driver and that you haven’t had any accidents that you needed to claim for. The more NCD you have, the less your premium is likely to be, as it’s there to encourage safer driving. However, if you’ve protected your NCD and still have claims or convictions, this will be reflected in your price.

When and how you drive your car

If you need your car for business purposes, it’s likely that your mileage will be higher and you’ll be on the roads more frequently. Taking your mileage into account is something you should consider accurately as, statistically speaking, the more you drive, the more likely you are to be involved in an accident.

The car you want to insure

The car you want to insure – Every car will fall into an “insurance group.”, lots of things are weighed up, like the car’s brake horsepower (BHP) , how easy it would be to source parts if you were to make a claim, and the make, model and type of vehicle (e.g. whether it’s expensive, sporty or modified in some way) Typically, the more expensive the car, the more it will cost to insure because of the higher cost to repair or replace.

Age and experience

They say age is just a number… but the younger you are, the more your insurance could cost. The same is true when you start to get older as this is linked to a higher chance of claiming. However, the more experience you have the less you might have to pay for your insurance, assuming you’ve built up your no claim discount (NCD) and don’t have any convictions. But it’s worth bearing in mind, there are lots of other factors taken into account as well.

Who’s on the policy

If you have a younger driver on your car insurance policy it can affect your price as they don’t have a lot of driving experience. This works the same way if you have someone on the policy who’s has had accidents and claims as they are seen as a higher risk to your insurance. However, if you’re a younger driver and want to add a more experienced, safer driver, this may help reduce your premium.

What are some of the events affecting your renewal premium?

Claims market

With around 600,000 personal injury claims each year, the cost of compensation for low value whiplash injuries caused by road traffic accidents (RTAs) has increased insurance premiums, which is reflected in the higher prices we’re now seeing.

Severe weather

Companies are having to regularly review the unpredictable level of claims in the future as a result of severe weather seen over the last couple of years, which cost insurers millions in claims, according to the ABI.

Rising taxes

The Insurance Premium Tax (IPT) rate doubled to 12% in 2017, which impacted premiums and hit younger drivers and low-income families.

Changes in legislation or regulations

Since 1 January 2022, all insurers must adhere to a new pricing regulation set out by the Financial Conduct Authority (FCA). It means making sure existing customers don’t pay more than a new Car or Home customer for a like- for- like policy on the same day.

In 2017 the Ogden discount rate was introduced. This legislation means insurers now have to pay out bigger lump sums for personal injury claims.

Repair costs

With prices increasing, the average paint and material costs have increased by nearly 16%. Around 40% of repair work is now affected by significant delays in receiving parts. Not to mention rising energy costs adding around £71 to each repair, and if you need a courtesy car, these costs are increasing at a rate of around 30%.

Total number of claims in the market

As the number of cars on the roads increases, so does the number of accidents. In 2020 nearly 13.5 billion pounds was paid out in claims alone. On top of this, the number of fraudulent claims made against car insurance is significantly higher than with other types of insurance. In 2020 alone, around 55,000 fraudulent motor claims were made.