What Drives The Cost Of Car Insurance?

Why is the cost of my car insurance going up? This is a question asked by thousands of drivers every year, and one which unfortunately doesn't have one set answer.

Many of the factors that affect the price you pay are personal to you, such as the level of cover you choose, losing a no claims discount, or gaining a driving conviction.  However, some of the issues that affect your premium are in fact completely out of your control.

These aspects are linked to conditions in the insurance industry, and as such cannot be altered directly by you. Below we cover some of the major outside influences that add to the cost of your policy.

What factors affect my car insurance premium?

There are a number of challenges the car insurance industry has to contend with, and unfortunately these can often cause premiums to rise across the board as costs are passed on to the customer..

The ever increasing expense involved in legal proceedings is one such problem: - people are now more likely to make a personal injury claim than ever before, and the amounts being awarded for injuries such as whiplash are also larger than they have been in the past.

Furthermore, the NHS can now claim treatment costs (including ambulance callout costs) from insurance companies. If you are the at-fault party in an accident, your insurer will have to pick up the bill for any NHS treatment the other party requires (and vice-versa, of course), and you might be surprised by just how large NHS bills can be.

Of course, simply by purchasing car insurance you are helping to keep premiums down. Research indicates that between 5 and 10% of UK motorists drive without insurance for some part of the year (in some cases this is simply a few days while switching providers), and if you are involved in an accident with an uninsured driver your insurer will likely take the brunt of the cost.

This problem adds around £30 to every insured driver's premium per year, which creates somewhat of a loop: As insurance gets more and more expensive, more people choose to drive without it, meaning more unnecessary costs for the companies, resulting in premiums increasing further - and then the cycle begins again.

Insurers also invest a lot of money gained from premiums in order to pay out when claims are made. Of course, when the stock market or global economy is unstable or otherwise sinking, investment returns are far lower, and this means the insurance companies have to find another way to bolster their income - and do so by raising premiums. While this is more obvious in the home insurance industry (Where freak weather can lead to high numbers of expensive claims), it also affects the car insurance industry.