You may have read recent national media stories about large car insurance premium rises making it harder for people to afford insurance cover. 

The reports have left many consumers questioning just how their premium is decided. Here we explain all. 

The fraud factor

With fraud being an issue that pushes up the price of insurance for honest customers, insurers are using robust fraud detection tools that identify when the name of an unknown person at a known address have been used.

Ultimately this means that quotes for the same vehicle, or even using multiple names at the same address, will cause systems to act as if the request for a quote is an attempted fraud. As a result, the website will either decline to provide a price or will offer a much higher premium.  And it is this that leads the media to think that they have the justification they need to write their story; however wrong it may be.

With this recent media furore in mind, we’ve put together a few points to explain how car insurance is actually priced to help you better understand what makes up your car insurance premium.

What factors affect the cost of car insurance?

There are a number of different factors used to set the price of your motor insurance. These will include:

  • Your age – younger and older drivers may have higher premiums as these age groups have historically had more crashes than other age groups.
  • Your occupation – the nature of your work may increase the risk of your car being damaged or passengers claiming for personal injury.
  • Your insurance claims history – if you have had to make claims in the past this can indicate a higher risk of claiming again.
  • Your postcode - the number of accidents and level of vehicle crime in your local area will influence your postcode rating.
  • The type of car you drive – this could be based on the performance of the car and its likelihood to be involved in an accident, the safety systems in the car and how they protect passengers when involved in an accident and the security measures to prevent theft.
  • Where you park your car at night – a car locked in a garage is less likely to be damaged or stolen than one parked on the roadside.
  • Your annual mileage - the likelihood of being involved in an accident increases the more time you spend on the road.

Racism claims

The confusion over insurance premium rises was further complicated at the end of last month when a new dimension was added – racism.

In an article run by The Sun and replicated by media across the UK, it was claimed that an individual with the forename 'Mohammed' could be charged almost £1,000 more for car insurance than an individual with a traditional English name, like 'John'. This conclusion was based on the journalist getting car insurance quotes from websites using made-up information and names.

Those of us who work in the insurance industry know that this accusation of racism patently isn’t true, so how then has this journalist been able to evidence their story with increased prices for one name over another?

The truth is that it’s almost impossible to do.  A journalist would have to find real people who live in very close proximity, are exactly the same age, have the same driving and claim record, own identical vehicles (model and mileage) for the same length of time and have the same renewal date.