Car insurance premium split
Trying to understand why your car insurance premium costs what it costs can be confusing - especially when it goes up and down. It's important to us that you know where your money is going. So we've broken it down to make it as simple and clear as possible.
Claims: 60% to 90%
On average, between 60% and 90% 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 the worst happens we'll be there for you.
Profit: -15% to 5%
Every business has to make a profit to exist - we're no different. But the profit we make is less than you might think. And in the recent financial climate, many insurance companies aren’t making any profit at all.
Insurance Premium Tax: 12%
Part of your insurance premium is made up by the Government’s Insurance Premium Tax, or IPT for short, which is something we can't control.
Expenses (including commission): 15% to 25%
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: 2% to 5%
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.
Reasons why your price could change
The cost of claims
Unfortunately, it's not just your own claims history that affects your car insurance premium. 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.
Insurance fraud
According to the Association of British Insurers, fraudulent motor claims represent around 59% of insurance claim fraud. 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 (hereafter referred to as IPT) for example. If IPT goes 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.
Sometimes the changes you make to your policy can affect the cost of your price - no matter how small. Here’s some examples:
Changing your car
If you’re upgrading your old car to a newer model, you’ll probably pay more for your insurance. As well as your driving history, we’ll consider how likely it is to be stolen, size of engine, risk to other road users, and potential repair costs.
Changing your address
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.
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, can make your price go up too. 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.