As with other type of insurance policies such as health insurance and life insurance, the car insurance premium that is set for the policy applicant is based on numerous factors. Insurance companies basically narrow down on a premium rate based on the risk factor of the individual. If they feel that the policyholder is likely to make claims on a frequent basis, they will set the premiums higher. For example, if the policyholder is older and is a smoker, then the premiums set will be higher. Similarly, with regard to vehicle insurance policies, the premium is set based on a number of parameters. While the current parameters of setting a vehicle insurance premium is the IDV (Insured Declared Value) of the car, the geographical location of where the car is driven, the make and model of the car, in the future, motor insurance companies are focusing on including a few more parameters to decide the premiums of motor insurance policies. While including the parameters to determine the premium is still in the implementation phase, we’ll take a look at how they will influence the rate of motor insurance premiums in the future.
Listed below are some of the factors that help a car insurance company set the premium for the insurance policy. Take a look:
Currently, the premiums set for diesel cars are relatively cheaper than those cars with petrol engines. However, the premiums set for cars that run on LPG gas are relatively higher due to the risk factor.
The engine capacity of the car is one of the main factors that decides the premium rate of the car insurance policy. In addition, the make and model of the car also matters. The premiums are higher for cars that are older as compared to the newly launched car models as the possibility of it being more expensive to repair is higher. For example, the premium of a smaller car, say like a hatchback as compared to an SUV will be a lot cheaper. Of course, the age of the car is another contributing factor that determines the premium rate of a motor insurance policy.
As already mentioned, the age of the policyholder is a factor that is taken into consideration when setting the premium rate of the insurance policy. In addition, the job security and the lifestyle of the applicant or policyholder also also help in deciding the premiums.
If the vehicle contains safety devices such as an anti-theft lock, air-bags, and an additional locking system, etc., then the insurer will also take this into consideration when setting the premium rate. In addition, if the vehicle owner has a private garage instead of parking his/her car on the road, then the premium rate based on the risk factor is set accordingly.
This is another huge factor which insurers take into consideration when deciding the premium rate of the insurance policy. If the car is driven in an area which is accident-prone, or prone to natural calamities, then the premium set will be relatively higher.
If a policyholder has a claim-free year, then he/she can avail the no-claim bonus feature when renewing their insurance policy. Insurers give customers the benefit of clubbing 5 free-claim years or up to 100% of the premium rate. For every claim-free year, the policyholder will get a significant discount on the premium when renewing the policy.
While currently the premium rate is set based on the usage and the history of the car, listed below are some factors insurers will take into consideration when setting the premium rates in the future:
In the future, insurance companies are looking at setting the premium rate of the car insurance policy based on the distance covered by the vehicle owner. If the car owner travels more than the usual, then the premium rate will be set relatively higher. Of course, this will be implemented only when the insurance companies can track the distance covered by the individual.
Though this is a factor taken into consideration when availing a loan, apparently, car insurance companies are looking to add this aspect when setting the premium rates of the insurance policy. Having a good credit score reflects the attitude and the responsibility factor of the individual and insurers want to add this as a parameter when setting a car insurance policy premium.
Car insurance companies feel that people who own their homes rather than the ones staying in a rented place are far more responsible and should be allowed to avail cheaper car insurance policies due to the trust factor. In addition, owning a house almost inevitably means that the vehicle owner will have a private parking space, enhancing the protection one can give to his/her car, rather than parking it on a road.
If the vehicle owner has a history of servicing or repairing the car at an authorised center rather than at a local garage, then car insurance companies feel that they should be eligible for cheaper premiums. However, to monitor this very aspect, it is going to be quite a hurdle for insurance companies.
While the above-mentioned factors are just a proposal and car insurance companies are looking to implement them as the parameters of setting a car insurance premium, gathering such information will be quite a task for insurance companies.
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