Why Is Car Insurance So Expensive?

Article Category: Finance

When thinking of buying a new car, insuring your vehicle is often the most important aspect to consider in terms of costs and budget. It’s frustrating, but the key thing to remember is that unless you are a mature driver with an impeccable driving record, it is more than likely that the initial insurance quotes you receive will seem more expensive than you’d hoped.

There are three common factors that noticeably affect the cost of car insurance. The first depends on your driving history. As is expected, if you have a history of frequent accidents, claims or recklessness then any insurance company is likely to regard you as a higher risk, and will push up the price accordingly.

The second factor is your location: in the UK, the size of the country and the nationwide standard of roads and traffic mean that prices are typically similar throughout (though this can be affected by crime levels etc). However, those drivers who reside in the USA, for example, will notice that prices can vary from state to state – this is due to the differing ways in which each state manages and enforces automotive law, and the far more diverse levels of traffic, accidents and crime.

The third and most significant factor to consider is your age. Younger or teenage drivers will probably be well aware that they receive higher insurance quotes, and this is simply because insurance companies have little or no data by which to judge your capabilities as a driver. Consequently, they must look to other sources (such as age and gender groups) as an indication to ascertain how safe a driver you are.

So why are car insurance quotes calculated in such a way?

It is a slight misconception that the high cost of car insurance is simply a reflection of the amount of payments insurers have had to make in recent times. Trends amongst claimants, such as the increase in personal injury (i.e. whiplash) claims also push up insurance costs. Additionally, a growing factor that is affecting how much we pay is that of uninsured drivers. Some statistics suggest one in 20 UK drivers has no insurance, and it is the sector as a whole which has to pay in excess of £400 million to compensate for these – which, in turn, is funded by our premiums.

How can I lower this cost?

As car insurance prices continue to increase, competition among insurers is causing each to try to offer you the best deal. One current trend within the industry is for certain insurance providers to offer cash back as an incentive to buy with them. These can seem good, but some criticism has arisen arguing that such deals are merely implemented in order to distort actual prices and to make bad offers seem more enticing.

One failsafe method to get cheaper quotes is to invest the time in researching the market. Using car insurance comparison sites are an efficient way to give you an overview before making that purchase, and a good starting point for anyone eager to get behind the wheel.

Article written for The Calculator Site
Article date: 22 Apr 2009