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Car insurance premiums: it's mostly about you

Age and your area are used by car insurers to calculate a suitable premium for you.
Age and your area are used by car insurers to calculate a suitable premium for you.
Image: Supplied.

Thieves like black or red cars, we are told. So, you may therefore think that you will pay higher premiums to insure these cars than if you choose a white car.

But, the truth is, there are many factors that influence the premiums you pay to insure your vehicle against being stolen or damaged in an accident.

It is a prudent thing to do to insure yourself against the financial loss you would suffer if your vehicle is damaged or stolen because theft and accidents are common and accidents can happen in spite of you taking the utmost care when you go out on the road.

When you take out motor insurance you pay a premium for the insurer to take on the risk of an event for which you are insured occurring, says Precious Nduli, the head of technical marketing for Discovery Insure.

In order to determine your premium, your insurer needs to quantify the risk that it is taking on. This means quantifying the likelihood that one of the events for which you are covered will occur and the expected average cost of the claims arising from those events.

"The likelihood of having an insured event and the average expected cost is determined from what we refer to as 'rating factors' . These factors are different for each client," Nduli explains.

Depending on how you score on the rating factors, you may be a low, medium or high risk to your insurer and this determines how much you will pay in premiums.

Insurers all use this way of determining premiums, but the rating you get will differ from insurer to insurer, which is why you may be quoted one premium by one insurer and a higher or lower amount by another, Nduli says.

For example, the make and model of your car, where you live, where your car is kept at night, who the driver of the car is, what purpose your car is used for and your previous claims history, all go toward calculating your premium, Tyrone Lowther, the head of Budget Insurance, says.

"An important consideration is the fact that some cars are more susceptible to theft than others. For example, a very common model on the roads is easy to obtain parts for, so it is likely to be a greater target for theft. Also taken into account is the cost to repair or replace the car if it is stolen or damaged in an accident," Lowther says.

Natasha Kawulesar, Outsurance's head of client relations, says: "These factors have been statistically proven to predict the expected claims cost and therefore premium to be charged for each profile."

Different companies use different models and, as such, the premiums can vary quite widely for the exact same vehicle, she says, echoing Nduli's point.

For instance, where you park regularly may influence the likelihood of your vehicle being stolen and therefore the risk you pose to your insurer. Factors such as how secure or exposed the parking area is, whether the suburb is subject to high or low theft rates, all play a role, Nduli says.

But, one does not buy a car to park it, but rather to drive it.

When you apply for insurance you will be asked who generally drives your car.

Outsurance's Kawulesar says the age of the driver is a factor that determines your premium. An older person who received their driver's licence at a young age, would generally have greater driving experience than a young person. Thus an older person may be quoted a lower premium, she says.

Discovery Insure's data shows that night-time driving is up to seven times more dangerous than driving during the day as a result of decreased visibility and also being more exposed to people who are driving under the influence.

The company therefore takes steps to incentivise Discovery Insure drivers to drive less at night to reduce their risk of accident.

Remember, honesty is key when providing information. Dishonesty is likely to be discovered when you claim and could result in your claim being rejected.

Age and marital status also used to decide what premium you will pay

The list of criteria insurance companies use to determine your premium is long and varied, although many are common to all insurers.

Some insurers, such as Discovery and Outsurance, use telematics - either through a device fitted to your car or a smart phone app - to collect data about your driving behaviour and assess your risk.

Below is the list of factors that Discovery Insure uses to determine your premiums:

• Kilometres or mileage driven annually - the more mileage you drive, the more likely you are to have an insurance claim and are associated with higher risk than others;

• Your gender - on average women have fewer accidents than men;

• Your marital status - typically, single people exhibit riskier behaviour on the roads than married people;

• Your geographical location - certain areas are subject to more theft and accidents than others;

• Your driving history - most insurers don't have this information when you take out insurance, but they can ask how long you have been driving and how many recent accidents you have had. Certain factors such as age and gender are used as a proxy for your driving behaviour;

• Your claims history - past claims are a predictor of future claims;

• Your credit history - your credit record is also used as a proxy for risk. Typically, if you have a bad credit history it means you pose a higher risk.

• Your previous insurance cover - your insurance history and how long you have been with the past insurer also determines your risk, especially if you had a policy cancelled in the past;

• Your vehicle type - this impacts on the average cost of the claim or the average cost of repairs;

• What you use your vehicle for - you will be asked whether you use the vehicle for personal/ private or business use. Private use means you travel between work and home and use your vehicle for personal reasons. You may occasionally use it for business purposes, but not more than six occasions in a calendar month. If you use your vehicle for business purposes to travel to meetings or visit clients, it increases your risk to the insurer and you must inform your insurer;

• The type of cover and the excess - the more comprehensive your cover, the more expensive it will be;

• The value of your cover - you can insure for the retail or current market value, and

• Whether the car has any modifications or extras - this can affect the insured amount.


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