According to the latest Confused.com car insurance price index, the cost of car insurance has dropped on a quarter-by-quarter basis since the end of 2023.
So, it's fair enough to ask why your policy is still expensive - or worse yet, more expensive.
We'll look at the main factors that affect your policy and how you can reduce your car insurance costs.
What affects the price of my car insurance?
A lot goes into calculating the cost of your car insurance policy. But there are two main things that can affect the price of your car insurance: economic and personal risk factors. Here's more detail on both:
Economic reasons
The bad news is that, to a certain extent, some of these economic reasons are entirely out of your control. Factors that influence the price of car insurance include:
- Insurance Premium Tax (IPT): This is a tax that the government imposes on all insurance policies. There are two rates of IPT: a standard rate of 12% and a higher rate of 20%, which applies to travel insurance, electrical appliance insurance and some car insurance.
- Serious injury compensation: When people make a claim for a serious injury, like whiplash, insurers use something known as the Ogden rate to calculate payouts. This can go up and down and has a direct impact on the cost of your cover.
- Uninsured drivers: If you’re hit by an uninsured driver, you might be able to claim through the Motor Insurance Bureau (MIB). This impacts other drivers’ insurance costs, as the MIB recoups the money by raising the costs of other drivers.
Personal risk factors
Do you ever wonder why insurers ask you so many questions about your life and driving history? They do this to build a risk profile and the likelihood of you claiming through your car insurance policy.
The bottom line is that if an insurer thinks you’re high risk, they’re likely to charge more. When car insurance companies calculate your car insurance costs, common risk factors include:
Car accidents
Accidents happen. Unfortunately, if you're involved in one, chances are the cost of your policy is likely to rise.
Even a minor accident could bump up the cost of your insurance. If an accident was your fault, you might expect an increase in your insurance costs. But even if it wasn’t your fault, the cost of your cover might still go up.
Points on your licence
Courts can put penalty points on your licence if you break the law on public roads in the UK. This generally happens if you're caught speeding, using a mobile phone behind the wheel, or convicted of drink or drug-driving offences, for example.
How much you pay for your car insurance is likely to rise if you’ve got points on your licence. Some points stay on your licence for several years, depending on how serious the offence is.
You must declare any points on your licence and the reason for them to your insurer. If you don't, you could invalidate your policy, and your insurer might not pay out if you need to claim.
Car modifications
Car modifications are what they say on the tin: changes made to your car since it was manufactured. Whether you replace an exhaust or add more power to your engine with a turbocharger, it all counts.
Some of these examples include:
- Remapping your engine
- A new spoiler
- A new tow bar
Car modifications can sometimes make cars more attractive to thieves, which ups the chances of them being stolen.
Other modifications might increase the speed and power of the car, which puts you at more risk of being involved in an accident. What counts as a modification varies between insurers, as does the additional cost.
Look out for insurers who may offer insurance specifically for modified vehicles.
Your job
It might seem odd that insurers ask about your occupation, but there's a good reason behind it.
Some jobs require frequent travel, whereas others might be based at a single office. Insurers also take into consideration the occupations that result in the most amount of claims.
So, different jobs might be at higher risk, even if the job doesn’t involve driving.
Your car’s value
It sounds painfully obvious, but you usually pay more for car insurance if the car you drive is more valuable. This is partly because compatible car parts are likely to be more expensive to repair or replace.
Generally, more valuable cars are also more likely to be stolen.
Your age
Young drivers tend to pay a lot more for car insurance than any other age group.
To illustrate this, the latest Confused.com price index shows that the average cost of car insurance in the UK is £777. In comparison, 18-year-olds pay £2,434 and 17-year-olds pay £2,258, on average.
There are a few reasons behind this, but generally, less experienced drivers have a higher claim risk.
Criminal convictions
If you’ve got a criminal conviction, your options for a car insurance policy are likely to be limited and ultimately cost more.
This is because you’re seen as a greater risk to insurers. Unspent criminal convictions, motoring-related or not, should always be declared to your insurer. Not doing so could invalidate your policy and put your ability to claim at risk.
You might also need to declare spent convictions, but only if you’re asked.
How do I cut my car insurance costs?
How about some good news? There are ways you could cut the cost of your car insurance policy!
You can’t control some of the factors that impact the cost of your car insurance. But that doesn’t mean there aren't things you can do to help reduce how much you pay. It may be worth giving the below a go:
- Shop around: Compare car insurance quotes to find the best value cover - this is usually the best way to cut costs.
- Don’t overestimate your mileage: The larger your estimated mileage, the more you might pay.
- Increase your excess: By agreeing to pay more towards the cost of a claim, you could reduce your car insurance costs. Just make sure your car insurance excess remains affordable.
- Think about a black box policy: Younger and less experienced drivers could save by agreeing to fit a black box device to their car. This monitors driving habits; the safer you drive, the less you pay!
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