What Drives the Cost of Car Insurance?

Thousands of policy holders are wondering why their car insurance rates go up when it doesn’t seem like anything is changing in their own situations that might affect the costs. These price increases are confusing and frustrating, especially since it is hard to pinpoint the reasons for them. While some of the things that affect your premiums depend on you – such as policy choice, losing your no claims bonus in an accident, or receiving a traffic citation – the truth is that many factors that drive this price up are not within your control. These are connected to the insurance industry itself and therefore cannot be changed by your decisions or behaviours.

Factors that Affect Your Premiums

The car insurance industry has a lot of challenges to deal with. Unfortunately, many of these things can make insurance costs go up across the board and end up passed down to the policy holder, turning what you thought was your cheap car insurance into a bigger expense. The increasing cost of legal proceedings is just one of these problems. In our currently litigious society, people are more likely than ever to file personal injury claims than at any time in the past. The monetary amounts that are being awarded to people claiming car accident related injuries are growing ever larger, as well.

To complicate this even further, the NHS is now able to claim treatment expenses from insurance providers. If you happen to be at fault for an accident that hurts someone else involved, it is your insurance company that will have to foot the bill for NHS treatments that they need. These bills can be staggeringly expensive. Fortunately, this applies to you in the event that you are hurt in a car accident, as well – your treatments would go on the insurance policy belonging to the person at fault.

However, simply buying a car insurance policy can help to keep these premiums a bit lower. Current studies show that anywhere between 5% and 10% of drivers in the UK are on the roads without being covered by insurance for at least some period of time each year. In some instances, this might be for just a few days while an individual is switching insurance providers and is waiting for their new policy to begin. However, some people do not buy insurance at all, despite having minimal insurance being a legal requirement. In the event that you are in an accident with someone who is not insured, your insurance company will be the one who has to eat the costs. This adds approximately £30 to the premium payments of each of the country’s insured drivers annually. It also creates something of a Catch 22 situation. Insurance becomes increasingly expensive, more and more drivers choose to drive without being covered, creating more costs for insurance companies in un-insured accidents, making everyone’s premiums go even higher, and the loop starts over again.

Insurance providers invest a great deal of the money that they obtain through their policy holders’ premium payments so that they are able to pay out for the claims that are filed. When the global economy or national stock market are a bit rocky, the returns from their investments turn out to be significantly lower than expected. This translates into insurance providers being forced to search out other ways to increase their incomes. They often do this by raising the premium payments of their customers. This is more blatant when it occurs with companies providing home insurance, when they raise prices after terrible weather occurrences bring in large numbers of high claims, but car insurance providers do the same thing.