The state of the car insurance industry

It's not cheap to run a car - tax, fuel and maintenance all add up, not to mention the cost of car insurance. So motorists will no doubt be pleased to learn that after years of rising prices car insurance premiums have started to come down in recent times according to the MoneySupermarket Motor Monitor.

Of course, the falls do not yet make up for the steep hikes in premium rates over the past few years. Make no mistake, car insurance will still take a big bite out of your budget, especially if you have more than one vehicle. It is therefore important to understand a little about the car insurance market, as well as the different policies on offer, to make sure that you buy the right policy cover at the right price.

Legal requirement

Don't be tempted to drive without car insurance as it's against the law. In a bid to crack down on the number of uninsured vehicles on the road, the government introduced Continuous Insurance Enforcement in 2011. Basically, if you own a car, it must be taxed and insured, unless it has been declared off the road through a Statutory off Road Notice (SORN). Anyone who is caught flouting the rules will be issued with a fixed penalty notice and could eventually have their vehicle seized and destroyed.

Fraudulent claims

Motorists who drive without car insurance push up the price for everyone else. Official figures put the total cost at about £380 million a year, or £30 on top of every premium. Fraudulent claims add to the cost burden, pushing up the premiums of honest customers by about £50 a year. It is thought that 7% of car insurance claims in 2011 were fraudulent, up from 5% in 2010. Experts blame the increase mainly on the rise in the number of fraudulent whiplash claims.

The NHS can also claim some treatment costs from motorists and their insurers, which is ultimately reflected in higher premiums for all of us.
The government has recently announced its intention to ban referral fees in personal injury claims in an attempt to curb the “compensation culture”.
The ban comes into force in April 2013 and will stop insurance companies selling personal injury details to lawyers. The insurance industry has also established the Insurance Fraud Register, a single industry-wide database that carries records of all known insurance fraudsters.

Risk factors

Insurance is all about risk, so the riskier you are, the more expensive the cover. Insurers look at a number of factors before they quote a premium for car insurance cover, but your age is one of the key indicators of risk. Basically, older motorists have fewer accidents than younger drivers. In 2010, for example, of the 6,506 people who were killed or seriously injured on Britain's roads, 26% were in their teens or early twenties.

A higher level of risk among the young is reflected in higher car insurance quotes which results in they paying significantly more than the average motorist. But young drivers should not despair. There's lots of useful information and tips on how to get cheaper deals on our car insurance for young drivers page.

Men are also considered to be a more risky gender than females as they are actually more likely to make an expensive claim. Females are more likely to make a claim in general, but these tend to be for lower speed incidents which require less repair work to be undertaken. It has therefore traditionally been the case that womens car insurance has been cheaper than for male motorists. However, the ECJ gender ruling means that from the 21st December 2012, insurers have no longer been permitted to discriminate on the grounds of gender when calculating premiums.

Some occupations and postcodes are riskier than others. The type of car you drive can also affect your premium. Insurers put cars into 50 car insurance groups, with vehicles in the highest groups attracting the highest premiums. A car's insurance group depends on a number of factors, including price, performance, the cost of parts and the typical repair times. And as you might expect, a high performance car is costlier to insure than a family runabout. You can find more information on this on our car insurance groups guide.

Rewarding safe drivers

Insurers reward careful drivers and one of the best ways to cut the cost of motor insurance is to build up no claims discount. In some cases, you can knock 75% off your premium if you manage five consecutive years without a claim. You can usually transfer your no-claims discount from one insurer to another so you don't need to stick with your existing firm at renewal to benefit.

You can also pay a little extra to protect the discount, in which case you are allowed to make a certain number of claims within a year without jeopardizing your bonus. However, your basic premium could still increase at renewal.
Motorists with a poor driving record often find it hard to arrange affordable car insurance. So if you have numerous driving convictions, you might need to contact a specialist insurer. 

Types of car insurance

There are three different levels of cover. Third party car insurance is the most basic and the minimum legal requirement. It essentially pays for any damage sustained by a third party, their vehicle or their property if you are at fault. So, if you reverse into your neighbour's car for example, the policy would cover the damage to their car. It would not, however, pay for any repairs to your own vehicle.

Third party fire and theft car insurance is one step up and includes cover in case your car is stolen or damaged by fire. Then there is comprehensive insurance that covers all of the above, plus you and your car for any injury or damage, even if it was your fault.   

Most drivers opt for fully comprehensive car insurance because the extra cover gives them additional peace of mind. But if your car is not worth very much, third party cover might be adequate. Younger drivers also often opt for third party to save money. It's always worth checking the premiums for all levels of cover, though, because you may find that a fully comprehensive policy doesn't actually cost you much more - in some instances it might even be cheaper! You can find out more about the different levels of cover on our car insurance policy types page.

Optional extras

When comparing car insurance quotes it's important to look at what you're covered for as well as the price as insurers differ in what they include in their standard cover.

While one insurer might include windscreen cover as standard, another might exclude it. Other common exclusions include legal expenses, a courtesy car and breakdown cover. You'll be able to buy these as add-ons to your policy. 

However, be careful as the cost of optional extras can soon mount up so it's important to make sure that you don't pay for something that you don't need. And remember that you should always compare prices for add-ons such as breakdown cover in case a stand alone policy is cheaper.

A separate breakdown cover policy might also give you a wider choice of cover options. The same goes for European car insurance, as it may be cheaper to purchase a separate short term policy which covers overseas travel rather than paying for it as an add on to a conventional policy. 

Specialist policies

Mainstream insurers cover a wide range of motorists and vehicles, but if you or your car is particularly unusual, you might need a specialist car insurance policy.

There are specialist classic car insurance providers out there for instance that offer policies aimed at these particular types of vehicle. MoneySupermarket.com compares deals available through these specialist providers along with conventional car insurance companies in order to find you the right deal at the most competitive price.

MoneySupermarket.com will also seek out policies if it is you who has the specialist requirements. Perhaps you have yet to pass your test and require a learner driver car insurance policy. If this is the case, then MoneySupermarket will retrieve all the policies which are relevant to you given your requirements.

Be honest with your motor insurance provider

Motorists often like to customise their cars, but it is important to tell your insurance company as any modification could affect your premium, even if it's a minor tweak, such as a spoiler or tinted windows. If you keep quiet about any changes to your vehicle and subsequently made a claim, the insurer could refuse to pay up. So honesty is always the best policy because otherwise you will effectively be committing insurance fraud. 

Not all modified car insurance policies will necessarily be more expensive however; with security enhancing modifications such as the addition of alarms and/or immobilisers making it less likely that your car will be stolen and hence reducing the chances of you making a claim.

Watch out, too, if you drive your car for business, even if you only use it to visit clients, as a standard policy will usually only cover social, domestic and pleasure use, unless you specify otherwise. You can compare dedicated business car insurance policies on our comparison site.  

Multi-car policies

Many households these days own more than one vehicle, in which case it might be worth considering a multi car insurance policy. You can usually insure up to five vehicles, and it cuts down on paperwork as well as premiums. People who insure multiple vehicles with the same company can often shave 10% or more off their premiums. 

Policy excess

All car insurance policies carry an excess, which is the amount you have to pay towards any claims. The excess usually comes in two parts: the compulsory excess, and the voluntary excess.

A typical compulsory excess might be £200, so if you make a claim for £500, the insurer would pay only £300. It's worth bearing the excess in mind before you put in a claim. If the damage is not serious, it might be better to pay the full cost out of your own pocket in order to protect your no claims bonus. Check the small print of the policy though because the excess does not always apply to minor claims, such as windscreen repair. 

You choose the level of your voluntary excess, usually starting at £50 or £100. If you are prepared to agree to a higher voluntary excess, you might be able to negotiate a lower premium. But be careful! Remember that you must pay the excess in the event of a claim, so it should be within your budget.

You can purchase a separate excess insurance policy through our website, which ensures that you won't be forced to face this unexpected expense. But do bear in mind that you will need to pay for excess insurance alongside your conventional car insurance policy.

Where to buy your cover

You can apply for car insurance direct from the insurer, through a broker, or with the help of a car insurance comparison site. If you contact an insurer directly, the firm will only give you details of its own cover so you will not be able to assess whether or not it is good value for money in relation to the rest of the market. 

Car insurance brokers can search the market to find the best deal for their client and offer advice on the right type of policy. However, some brokers select from only a limited number of insurers - and some insurers do not sell through brokers.

An online car insurance comparison site is a quick and easy way to compare hundreds of insurance policies, whether you want mainstream cover or a specialist policy. You will find cheap car insurance quotes provided by some of the country's leading insurers on MoneySupermarket.com which could help you find the best policy for your circumstances. You can even download the MoneySupermarket car insurance app so that you can compare car insurance when you are on the move. 

Applying for cover

When you apply for car insurance you will need to answer a number of questions, so it's a good idea to have the information to hand. The insurer will want to know about you, your age, occupation, address and any previous motoring convictions. It will also ask for the age, make and model of the car, a rough idea of the annual mileage and where it is kept overnight. You should give details of any modifications to the car and whether
you intend to use the vehicle for business.

You can carry a no claims discount from one insurer to another, but you might have to send proof of your claims history. Remember too that you will need a valid MOT certificate if your car is more than three years old.

Insurance fraud is a criminal offence, so it is important to be open and honest with your answers. You should also inform your insurer if anything changes during the policy term. Failure to disclose any relevant information could invalidate your policy so that it would not pay out in the event of a claim.

Monthly installments

Standard car insurance policies run for 12 months - and if you pay the annual premium up front it can take a big bite out of your budget. However, most insurers give you the option to pay in monthly installments, so you can spread the cost over the year and make the payment more manageable. But watch out! It will cost you more if you opt for a monthly car insurance policy as you'll be charged interest so it is worth paying upfront if possible. 

Short term car insurance does not run for a full year. In fact, you can insure your car for just one day on a short-term policy, which can come in handy if you want to borrow a friend's car, or maybe a relative wants to drive your own vehicle for a few days. But don't forget about continuous insurance enforcement. It is an offence to keep a car that is not insured unless it has been officially declared off the road. 

Black box insurance

If you are struggling with sky high premiums, you might want to consider telematics insurance. It sounds a bit technical, but it basically means that the insurer will use a satellite tracking device or 'black box' fitted in your car to monitor how, when and where you drive.

Some insurers will fit the device for you, but you might be sent the unit through the post with straightforward instructions on how to get it working.

There are various black box insurance policies available and they work slightly differently. But they all reward careful drivers. So, if you drive few miles, or you are prepared to avoid driving at night or during the rush hour, you might save money with black box insurance. Some telematics firms claim they can cut your car insurance bill by as much as 50%.

Black box insurance could be particularly beneficial to young drivers who have not yet built up a driving record and so pay a high price for car cover. Telematics can also be a good option for low mileage drivers.

Cutting the cost of cover

The cost of car insurance might be coming down, but nobody wants to pay over the odds for cover. Yet many of us still stick with the same insurer at renewal, when we could probably find a better deal elsewhere. Loyalty rarely pays, so motorists should always shop around if they want to find a competitive car insurance premium.

MoneySupermarket can help you to find cheap car insurance quotes from leading insurers at the click of a mouse. The service is free and independent - we simply aim to find you the best deal available.

You should also try to limit the number of claims you make on the policy as the cheaper you are to insure, the less you pay for cover. You could try, for example, limiting your mileage. Think too about the security of your vehicle. Have you fitted an approved alarm and immobiliser? If your car is kept in a locked garage overnight, it will cost less to insure than a vehicle that is parked on the street.

Motorists might want to consider some kind of advanced driving course as it can reduce the likelihood of an accident by 25%. It can also lead to a discount on your car insurance. The Driving Standard Agency's Pass Plus scheme is aimed specifically at newly qualified drivers and you can read more about its potential impact on our pass plus insurance page.

However, there are other options available to all motorists. The Institute of Advanced Motorists, for example, runs advanced driving courses, or there's the Advanced Drivers and Riders Course offered by the Royal Society for the Prevention of Accidents (ROSPA).

Named drivers 

Another tactic that can result in cheaper car insurance prices is to add an older, more experienced motorist to the policy as a named driver. So, a young man might add his mum or dad to the policy to bring down the premium because there increased levels of experience will make them statistically less likely to make a claim. However, you should never put forward an additional driver as the main driver. For example, if your mum or dad rarely drives your car they should never be listed as the main driver. The practice is known as fronting and is a form of insurance fraud. It can invalidate the policy, making it difficult for everyone involved to get cover in the future - they could even end up on the wrong end of a prosecution. You can read more about the impact of named drivers in our named driver car insurance guide.

We have a number of ways to help you trim your car insurance premium on our money saving tips page.

And if you have any further questions about your car insurance, why not visit our car insurance forum to access the expertise of our customers.

†82% of shoppers obtained a quote in 5 minutes or less. Source eDigitalResearch December 2012.