Calculating risk

In order to provide car insurance quotes, providers use a system of calculating risk. Companies base their rates on the likelihood of you filing a claim, using a number of different criteria or factors to determine their risk appetite.

That said, the exact formula used by any auto insurance provider to calculate risk and determine their rates is not known, but understanding the factors that are taken into consideration can help you find ways to improve the premium rates that are being applied to your insurance.

Major factors considered by car insurance companies

The following are key factors used by insurance providers to calculate the cost of your car insurance:

1.    Driving history

Insurance companies will check your driving record:

  • Whether you have been involved in accidents in the past
  • Whether you have been cited for any speeding violations
  • The number of points you have received on your license or whether this has been revoked or suspended in the past.


If you have a history of accidents, your insurance company will often assume that you will get into more in the future and your premium is likely to go up. You will also likely pay higher insurance if you have a record of violations (i.e. speeding) and if you have previously lost your license.

2.    Security in relation to where you live and park your car

Where you live and keep your car is a major consideration when your car insurance is being calculated.

The provider will check crime rates in the area you live, whether you are likely to be subject to theft or accidents. If you live in a place that has heavy traffic flow or high crime rates such as vandalism or other car crime you can expect to pay a higher rate.

Whether you keep your car in a garage or park on the street will also affect your premium.

It is a good idea to tell your insurance company if you spend considerably more time at another address since companies can dismiss a claim if you did not disclose such information.

3.    How you use your car

The more you use your car the more likely you are to get into an accident therefore, the higher your premium is expected to be.

The following are categories of car use:

  • Social, domestic and pleasure – covers day-to-day vehicle use but not for travelling to work.
  • Social, domestic, pleasure and commuting – covers day-to-day use including driving to and from one fixed work location as well as driving to and parking at a railway station.
  • Business – using your car in connection with your job which may involve driving to more thank one location for work.
  • Commercial – using your car for conducting you business such as door-to-door sales.

4.    Your occupation

Insurance providers will take your profession into account when calculating your insurance premium. It is advisable to check where on the high to low risk spectrum your occupation falls. The lower your risk the lower your insurance and vice versa.

5.    Car value and age

The age and value of your car plays an important part in determining your insurance rates. The more expensive a car is the higher the rate and vice versa. The older your car is, the lower the value, the lower your premium will be.

6.    Medical conditions

If you hold a restricted license, this is a factor that the insurer can take into account, along with any adaptations made to your vehicle. If you have adaptations they will cost more to replace and therefore pose a higher risk, driving your premium upwards.

Be sure to inform the Driver and Vehicle Licensing Agency should you have any known conditions that could affect your ability to drive.

7.    Mileage covered

The more you use your car, the higher the mileage you cover annually and the higher the risk you pose for the insurer, so they will take this into account when assessing what your rate should be.

8.    Car modifications

Many people like to modify their cars, adding alloy wheels, spoilers and such paraphernalia to beautify their vehicles. However, the more modifications you make to your original model the higher the insurance premium you will pay as replacing these extra gadgets will cost the insurance company more in the event that you make a claim.

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