14 Factors that impact the cost of car insurance in Australia
The cost of car insurance in Australia is determined on a case-by-case basis against a predefined list of questions from insurers. For insurers, these questions are intended to better understand the driver and the perceived risk of them making a claim.
If you’ve ever been through an online car insurance quote generator, you’ll know just how subjective some of these questions may seem. To better understand the factors that influence the costs of car insurance in Australia, we’ve compiled a list of the 14 most important factors that insurance companies use to calculate your premium.
How do insurers determine your car insurance premium?
Given that most insurance companies incentivise buying car insurance online, it should come as no real surprise that the majority of Australian’s renew or buy their insurance online.
Before you get your car insurance quote, you’ll be taken through a series of questions which are used to determine the cost of your car insurance.
Based on those answers, you’ll then be presented with a personalised car insurance quote. Your yearly insurance premium is calculated based on the level of risk perceived by the insurer.
When you take out car insurance, the insurer is effectively assessing your risk of making a claim. If they view you as a high risk, then you can expect to pay a higher premium.
Different insurers provide different quotes. Most insurance companies draw from an in-house database to conduct their risk assessments and determine policy pricing. As a result, certain insurers may quote higher (or lower) based on their data.
14 factors used by insurers to determine car insurance premiums
For insurers, car insurance policies are about managing risk. The lower the risk, the lower you can expect to pay for your car insurance premium each year.
While it may be tempting to tell a little white lie to lower your premium, it’s important to know that failure to disclose correct information on any of these questions can lead to the policy being denied or nullified in the case of an accident, so it’s important to answer accurately.
Some of the factors that are used to determine your car insurance premium in Australia include:
1. Type of insurance policy that you choose
In Australia, buyers are generally offered two levels of cover on their car insurance policy.
Third party, fire and theft: this covers holders for damage that they cause to other vehicles, as well as in the instance that their car is stolen or catches fire. If you are in an at-fault accident with third party, fire, and theft insurance, you will be covered for damage to the other party’s vehicle but not your own.
Comprehensive: this is the highest level of insurance that can be taken out on your vehicle. If you are in an at-fault accident, damage to your car will be covered as well as damage to the other party. Despite being the highest level of cover available, there are still instances such as negligent or reckless driving where insurers may refuse to pay you out.
In addition to the type of policy that you choose, the amount of excess that you set your policy at (the cost to make a claim) will also influence costs. The higher your excess, the less expensive your premium will be and vice versa.
2. Model, make, year of vehicle
The make, model, and year of the vehicle that you insure will play a role in determining the cost of insurance. The more expensive the vehicle, the more you can expect to pay to insure it. In addition to the price of the vehicle, other factors such as power and accident history of that vehicle type may also be considered – a key reason why sports cars can be so expensive to insure.
3. Colour of the vehicle
Believe it or not, the colour of your vehicle may be used to determine the cost of your insurance premium. Research from Monash University determined a link between vehicle colour and crash risk. Despite what many think, the colour isn’t simply a test of red car = sporty car. The study used crash data from New South Wales and Victoria to determine cars that were lower on the visibility index (black, red, silver, grey, green) were at a higher risk than a white vehicle – the easiest to see in all conditions. The study found that relative crash risks for those colours was around 10% higher than an equivalent white vehicle.
4. Registration status of the vehicle
Whether or not the vehicle is currently registered will impact costs. You may be able to insure a car that is stored but not used on the road. However, you may be refused if your vehicle is not registered on the basis of its condition.
5. Existing damage status of the vehicle
Vehicles with existing damage, including hail damage, may be charged a higher premium or refused insurance entirely. Vehicles with a history of serious damage such as a repairable write-off may also be charged a higher premium based on the perceived risk for the insurer.
6. Accessories or modifications fitted to the vehicle
Modifying your vehicle in any way must be disclosed to your insurer. Some insurers will flat-out refuse to insure a modified vehicle (engine or cosmetic) while others may be fine with it or simply charge a higher rate. Owners with an extensively modified vehicle should seek out an insurance provider that specialises in coverage for modified, classic, or specialist cars.
7. Age and gender of the driver
Your age will be used to determine your insurance premium. Younger drivers are statistically more likely to be involved in an accident. To offset the risk, insurers will charge a higher premium. Similarly, the gender of the driver will be used to determine the cost of insurance. In almost all cases, female drivers will pay less for insurance than their male counterparts. As the age of drivers increases, the disparity does also come down. Statistically, males in the 18-24 age bracket pose the highest risk for insurers and are charged accordingly.
8. Driving history
Your driving history will be used to determine your insurance premium. Some of the factors include:
- Accident history
- Loss of points
- Type of driving offences
- Recency of driving offences
Drivers with a poor driving history can expect to pay more for their insurance premium. In some cases, drivers may be refused entirely by an insurance provider if the risk is too high.
9. Other drivers listed on the policy
Your car insurance premium isn’t just determined by your personal profile, it is also determined by other drivers that are insured to drive the vehicle. Insurance companies will consider the potential risk of other drivers listed on the policy and provide a cost that is in-line with the highest risk driver on the policy.
10. Drivers’ financial information (own a house, second car)
Owning a house, a second car, as well as other assets will be used to determine your car insurance premium. Home owners and those with a second or third vehicle are statistically less of a risk for insurers and will therefore pay less.
11. Vehicle location and where it is parked
The location of your and where it is parked is used to determine your level of risk. For instance, car owners that park on the street in a suburb that has a high crime rate can expect to pay significantly more than one that parks in a secure garage in a safe neighbourhood.
12. How often the vehicle is used
The average vehicle in Australia covers roughly 15,000km each year. For most insurers, this is the ‘median’ or starting point for a vehicle’s yearly mileage. Driving less means less risk of an accident which results in a lower premium. For most insurers, the lowest bracket for car usage is <5,000km per year. If you plan to drive significantly less, it may be worth speaking to the insurer before taking out your policy to see what kind of discount you may be eligible for.
13. What the vehicle is used for
Vehicles that are used for personal use are typically less expensive to insure than vehicles used for business. Vehicles used for rideshare or offered for rent are the highest risk for insurers. Some insurers will flat out refuse to insure a vehicle used for rideshare or insurance purposes – so it’s important to disclose this as your intended usage or update your policy if this changes.
14. Insurance and claim history of the driver
For insurance providers, previous activity is the best indicator of future performance. Drivers that have made insurance claims (at fault or otherwise) can expect to pay more than drivers that have not. Remember, insurers love drivers that pay their premiums without ever making a claim and will reward them accordingly.
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