Car Insurance Buyers' Guide page 2: Why car insurance prices vary

• Guides
• Published: 11 Sep 2008 in Motoring and Car Insurance

Like for like - the difficulty in comparing car insurance quotes

If you are a young driver or drive a sport car, insurance prices can vary widely. 

But while most of us accept that young driver car insurance costs more, many of us aren't sure why young people pay more (or less) when they move from one part of the country to another.

For example, someone going to a university in a big city will pay far more as a student for car insurance than a young driver would for car insurance in a rural area.

Another mystery is why some companies will drive up your premium if you get points for speeding while others won't.

The reason for this is that technology has revolutionised insurance by enabling insurance brokers to offer a far wider choice of products to cater to different markets.

Challenging insurance myths

Until recently, most insurers hired an underwriter to set their rates. These were people with huge experience in the insurance industry. They decided who was a good risk and who was not. 

For example, underwriters reasoned that people living in London had to contend with greater volumes of traffic so the likelihood of an accident was that much greater. That is why car insurance still tends to be higher for Londoners.

But there were also myths that were widely accepted as fact and used as pricing criteria. For example, journalists were perceived to do a lot of drinking at lunchtime and were viewed as a worse risk than office workers. Similarly it was commonly held that as people turn 25, they magically become better drivers.

Modern insurance methods

These days, underwriters have access to an array of statistics which they use to build profiles of all the claims their companies deal with. This gives them more flexibility to tweak prices so companies can appeal to certain individuals, such as a young drivers. 

Car insurance firms also look at the length of time drivers have held their licence, what area of the country they live in, the size of the car's engine, any No Claims Bonus (NCB) and any claims history when they decide on a price. 

But not all insurance companies cater to every group. Most have portfolios of risks they prefer to cover so they may lower their prices to attract a certain type of customer. Some cater only to standard risks, which includes people who are statistically less likely to make a claim, others prefer offering policies to higher-risk groups, such as offering sport car insurance or classic car insurance, for example. 

If you are not lucky enough to be classed as a 'standard risk', for example, if you are a student, car insurance prices can vary widely, from a slightly higher premium to a ridiculously high surcharge.

The advantage of specialist brokers

In more extreme cases, a specialist broker might be the only way of getting insurance at all.

By covering large numbers of people in specific high-risk categories, specialist insurance brokers are able to offer lower rates of insurance than mainstream brokers.

Take classic car insurance, for instance. Previously, insurers reasoned that since classic cars were older than modern cars, they were less safe to drive and more expensive to repair and so charged their owners higher premiums.

But some insurance brokers realised classic car owners tended to only drive their cars in good conditions at weekends and took better car of them as a whole. They saw them as a viable risk and so specialist classic car insurance was born.

Other examples of specialist brokers include:

• Convicted driver insurance
• Performance car insurance
• Sport car insurance
• Student car insurance
• Young driver car insurance

Next - page 3: Driving down car insurance

Back to page 1: Comparing car insurance