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Car insurance: still about the risk?

Car insurance, and indeed much of the rest of the insurance industry, has recently experienced a profound shift of the goalposts thanks to the European Court of Justice.  The recent ruling regarding discrimination and the way that insurance premiums are calculated strikes at the heart of the risk management practices that underpin the insurance industry.  The number crunching mathematical models of actuaries have been used to determine the cost of car insurance for years. car insurance High risk groups like young male drivers have then been charged higher car insurance premiums, to reflect the increased probability of an expensive claim being made on the policy.  However, after December 2012, this will no longer be legal.

This ruling carries a mixture of consequences.  Car insurance in many ways works like a kind of national collective responsibility when it comes to driving.  No matter who is offering the car insurance, whether it is a bank like Santander or a dedicated broker, risk assessment and management are still the keys to determining the cost of premiums.

This means that if a high risk group like young male drivers cannot be singled out due to gender, the cost of insuring this group must be shared.  It looks likely that young women will bear the brunt of this redistribution of the cost of insurable risk.

Industry insiders predict that car insurance costs could rise as much as thirty percent for young women. This dramatic rise will in all probability not be matched in magnitude when it comes to a discount for men, with possible reductions in car insurance premiums of around just ten percent for male drivers expected.

However, while certain rules of the car insurance game may have been changed by an outside authority, the heart of the industry is still risk management.  And this fact means that there are still plenty of things that can be done by any driver, regardless of age or gender, that can lower the cost of car insurance premiums.

Risk reduction is the key. The more risk factors that you remove from the business of owning and driving a car, the better.  For example, cheaper car insurance premiums will be offered to younger drivers who sit the additional Pass Plus test after the standard driving test.  The test is designed to require the mastery of enhanced driving skills that should make for a safer driver, a safer driver who is therefore less likely to crash.  Reduce the risk, lower the car insurance premiums.

The engine size of the car is significant for the same reason. Statistically, higher powered cars are involved in higher speed, and therefore far more serious crashes.  If you are a younger driver, perhaps the only way to drive these vehicles, without paying a fortune in car insurance, is to be named on the policy of an older driver.

This way, the risk of the car being driven by reckless youth is diluted with the possibility that the older, safer driver will be at the wheel.  However, avoid the temptation to ‘front’, as both drivers involved can suffer legal and financial penalties.  The simple solution is to drive a lower powered car if you will be taking out your own car insurance policy after you pass the test.

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