Car insurance premiums explained

Claims - 60.9%

On average, just over 60% of all premiums are paid out on claims. Paying claims is at the heart of what we do - that's the single reason you buy insurance, so you can be assured that when you buy a policy with us, that's where the biggest chunk of your premium goes. We paid out 99.8% of customers' car insurance claims last year¹.

Profit - 3.9%

Every business has to make a profit to exist - we're no different. But the profit we make is less than you might think. The average car insurance premium delivers just 3.9% of profit. That profit means we can keep on protecting you and your car, year after year.

Insurance Premium Tax - 10.7%

Part of your insurance premium is made up by the Government’s Insurance Premium Tax, or IPT for short. While the tax adds 12% to your insurance premium, it actually makes up 10.7%² of the overall cost to you.

Expenses (including commission) - 21.5%

It costs to keep the lights on. Like any business, expenses are necessary to keep us running. That's why some of your premium goes towards our employees' salaries and the cost of our offices, as well as investing in the most innovative technologies to make your experience with us as smooth and simple as possible.

Reinsurance / Industry Levies - 3%

Like all insurers, we pay into various industry funds that have been set up to protect you, the customer. For instance, the Financial Services Compensation Scheme protects you against an insurer going bust and the Motor Insurers' Bureau will compensate you if you are hit by an uninsured driver.

The cost of claims

It’s not just your own claims history that affects your car insurance premium. While some things are out of our control, like Government rulings for instance, we also take measures to protect our customers by ensuring claims aren’t fraudulent. We pay millions of pounds every year to settle our customers’ claims – and that cost makes up the biggest chunk of what each person pays us to insure their car. Insurance companies absorb repair and replacement costs associated with a claim, and this can have an impact on your premium – for instance where there’s inflation in the cost of car repairs.

Whiplash

With over half a million claims a year, and the numbers rising steadily, the increasing costs to settle whiplash claims affect every car insurance customer. We want to achieve the right balance between under and over compensation. Fairness and transparency for personal injury compensation is something that everyone can agree on. The Government’s commitment to protect honest motorists by introducing whiplash reforms will drive the worst behaviour out of the market, reducing the cost of insurance, and we are committed to passing on any savings to every motor customer.

Insurance fraud

According to a 2016 report by the Chartered Institute of Insurers, insurance fraud costs policyholders up to £50 per year. Unfortunately, it’s the innocent who end up paying the price. So, we’re working hard to stamp out fraud and stop this crime from hurting us all.

Taxes

Nobody likes paying taxes. But unfortunately, taxes make up part of your price. Take Insurance Premium Tax (IPT) for example. Between November 2015 and June 2017, it went up four times – from 6% to 9.5% to10% and then to 12%. That’s quite an increase that every insurer needs to include on every policy. If IPT continues to go up in future, this may unfortunately impact your future premiums when it’s time to renew.

Your No Claims Discount (NCD)

If you’ve driven for a year without making a claim, your car insurer will reward you with a discount. It’s a little thank you for your careful driving. Even if your premium has gone up for any other reason, you can rest assured that your no claims discount still saves you money – your car insurance renewal would be a lot higher without it.

Changing your car

If you’re upgrading your old car to a newer model, you’ll probably pay more for your insurance. In addition to your driving history, we also consider how attractive your car is to thieves, what size of engine it has, its risk to other road users and potential repair costs – all of which are potentially more likely with a shiny new car.

Changing your address

Among other things, your premium is based on the type of car you drive, your driving history, where it’s kept overnight, what security is fitted, and where you live.

Here’s some key factors that could change your car insurance if you move home:

• Number of accidents in the area
• Amount of traffic using the nearby roads
• Number of local whiplash claims and personal injury claims
• Crime and vandalism reported nearby

If there’s a higher than average number of claims in your postcode, then premiums in this area will be higher too.

Customer misrepresentation

Our experience shows that other peoples’ behaviour can affect all premiums. So, it’s very important that all our customers answer questions honestly so that we can assess their true risk. Sadly, some customers will choose to answer questions fraudulently to get their insurance at a lower price - for example, where they park overnight. This behaviour leads to all customers, including those who answer honestly, being charged more money to cover the additional risk a policy is based on.

Changing your drivers

Naming other drivers permanently on your policy can affect your premium. We look at the risk of the named driver, and drivers like them, based on the overall claims statistics and likelihood to be involved in an accident. Adding temporary drivers – or lots of drivers on the same policy – generally puts the price up. This is because the drivers are less familiar with your car, and are often more likely to make a claim than you.

Convictions

It’s important to tell us if you’re convicted of anything when you take out your insurance, as it could invalidate a future claim. We also need to know as soon as possible if you receive a non-motoring conviction or are banned from driving. For other motoring offences, please tell us when you renew your policy. A motoring offence could increase your premium, but only until it is spent.

Claims

If you need to make a claim, it won’t change the price of your car insurance straightaway, but you may see an increase at renewal - especially if you were at fault. You must tell your insurer that you've been in an accident, because if you don’t, they may not insure you in future. If you want to protect your no claims bonus by paying for the repairs yourself, you don't have to submit a claim — but you should still let us know.